This decade is expected to see the State Pension age rise to 67. This is set to occur between 2026 and 2028, and means that people are having to work for longer to receive their retirement income. This means that retiring early may become a more challenging goal.
However, by investing in FTSE 100 shares today, you may be able to improve your chances of beating the rising State Pension age. The index offers long-term growth potential that could provide a nest egg that delivers a passive income in older age. Even though it made strong gains in 2019, there appear to be numerous buying opportunities available at the present time.
Investing in the FTSE 100 is highly unlikely to produce a large nest egg in the short run. However, the index’s high-single-digit annual returns suggest that, over time, compounding can lead to a surprisingly big fund that boosts your retirement prospects.
For example, investing £250 per month in large-cap shares at an annual return of 9% could lead to a nest egg of over £400,000 in a 30-year time period. A 9% annual rate of return could be more achievable than many investors realise, since the FTSE 100 has delivered that level of total return on an annual basis since its inception in 1984.
Certainly, in the short run, there are likely to be challenges ahead for the index. However, the index has been able to grow at a fast pace throughout its history, despite facing major difficulties such as the global financial crisis, tech bubble and 1987 crash along the way. Therefore, the risks facing the index, such as geopolitical uncertainty in the Middle East, a global trade war and Brexit, may not necessarily hold back its performance in the coming years.
Buying FTSE 100 shares today is a relatively simple process. Tax-efficient accounts such as Stocks and Shares ISAs are available online and take just a matter of minutes to open. Furthermore, with the cost of buying shares having fallen in recent decades, it is now much easier and cheaper to diversify. This could not only help to reduce your overall risk, it may enable you to access fast-growing industries in a wider range of geographies. In doing so you may be able to improve your overall returns.
While the index recorded a total return in excess of 16% in 2019, it continues to offer good value for money. Sectors such as industrials and retail are priced favourably, while the growth potential of sectors such as healthcare and defence appear to be high. As such, there could be numerous opportunities for you to build a portfolio that offers long-term growth potential at a reasonable price. This could enable you to beat the rising State Pension age and retire early.
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Peter Stephens has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.