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No savings at 50? Here’s what I’d do right now

If you’ve reached 50 years of age with no retirement savings in the bank, there’s no need to worry. Saving for the future is always a daunting prospect, and sometimes, life can get in the way. However, it’s relatively straightforward to build a sizeable savings nest egg in a relatively short space of time. All you need is a strict saving and investing plan.

Step one

The first stage of this plan should be to open a Self Invested Personal Pension (SIPP). The tax benefits offered by SIPPs are desirable and can help you save more money in a shorter time frame.

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The good news is, anyone can contribute to SIPP up to the age of 75. So, even if you’ve reached 50 with no pension savings, you can still take advantage of this tax-efficient wrapper for the next 25 years.

Basic rate taxpayers contributing to a SIPP are entitled to tax relief at 20%. Higher and additional rate taxpayers are also entitled to tax relief, although the exact amount you receive will depend on your own financial situation.

Basic rate taxpayers can contribute up to £40,000 a year without attracting tax penalties. The tax relief available for basic rate taxpayers means that if you contribute £8,000, the government will add an additional £2,000 on top taking the total to £10,000.

Similarly, if you contribute £20,000 a year, the government will add another £5,000, taking the total to £25,000. These additional tax benefits can really help save for the future.

Invest in the stock market

SIPPs also allow you to invest in the stock market. Any capital gains or income received from these investments are tax-free as long as they remain inside the wrapper. However, you might have to pay tax on the money when it’s withdrawn.

Investing your money is the best way to grow your savings as fast as possible. For example, over the past three-and-a-half decades, the FTSE 250 has produced an average return for investors at 12%. That compares to the 1% offered by most savings accounts on the market today.

Powerful combination

The combination of SIPP tax benefits, as well as investment returns, can be compelling. For example, pension contributions of £20,000 a year, or £1,666 a month, would attract tax relief of 20%, taking the total to £25,000, or £2,080 a month.

Investing this money in an FTSE 250 tracker fund would yield a total nest egg of £1m after 15 years of saving, that’s assuming an average annual return of 12%. These numbers show how straightforward it is to build a sizeable pension nest egg in just 15 years. 

Even if you don’t have £1,666 a month to contribute, you can use the same strategy to build a significant retirement pot in a short time frame by taking advantage of SIPP tax reliefs and investing your money in the stock market.

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Rupert Hargreaves owns no share 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.