Britons of all ages are wondering if their retirement savings will be sufficient to enable a comfortable existence in their golden years. Today, I’d like to take a closer look at the cohort known as ‘Millennials’. If you were born between 1980 and 1996 (i.e., ages 24 to 40 in 2020), you are likely to be part of Millennials, also referred to as ‘Gen Y’. Let’s take a closer look.
Death of retirement?
Millennials were greatly affected by the 2008–09 recession, which caused record levels of unemployment and unprecedented economic instability. You may find that it’s now a lot more challenging to own a house than it was for your parents, that schooling has become a lot more competitive and expensive, and that it’s harder to find a job than before.
When trying to balance various life priorities, saving for retirement may easily get pushed to the back burner. However, the full basic state pension currently stands at £168.60 per week. Do you believe you can live on that amount for the rest of your life after retirement?
Younger savers will increasingly have to rely on investments to supplement their state pensions.
Brighter prospects ahead
It is important to form a realistic plan for paying for retirement. To start, I’d encourage contributing to your workplace pension scheme if you have one.
Every UK resident should also learn more about the different types of ISAs available to them, with an emphasis on Stocks and Shares ISAs. You may also benefit from discussing your own financial realities and expectations with a financial planner.
My Motley Fool colleagues regularly cover FTSE 100 and FTSE 250 shares and funds that you could consider adding to a diversified retirement portfolio. They point out that the stock market returns about 7% to 9% annually on average. Research also shows that investors who purchase dividend-growth stocks and reinvest the dividends to buy more shares are likely to see considerable growth in their savings.
Which dividend stocks could you buy from the FTSE 100? At present, tobacco firm Imperial Brands offers a yield of about 10.1 %. If you are looking at banks, current dividends for HSBC Holdings and Lloyds Bank stand respectively at 6.6% and 5.6%. At the lower end, pharmaceutical giant AstraZeneca, whose share price has been on the rise in recent months, pays 2.8% in dividend yield.
Time may be the most precious resource
Here’s an example of the power of time on your investments:
Let us assume that you’re now 35 years old with £10,000 in savings and that you plan to retire at age 65.
You decide to invest that £10,000 in a fund now and make an additional £3,000 of contributions annually at the start of the year. You have 30 years to invest. The annual return is 8%, compounded once a year. At the end of 30 years, the total amount saved becomes £517,977.
Saving £3,000 a year would mean being able to put aside £250 a month or about £8–£9 a day. Might you just be wondering if you should skip that next impulse purchase?
By harnessing the power of compounding, Millennials can turn modest initial investments into substantial holdings over several decades. The good news is that they have the time to wait it out.
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tezcang has no position in any of the shares mentioned. The Motley Fool UK has recommended AstraZeneca, HSBC Holdings, Imperial Brands, and Lloyds Banking Group. 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.