If you haven’t built any retirement savings by the age of 40, it’s not the end of the world. You still have at least 25 years to build a big enough investment pot to retire comfortably, but you really do need to take action now. Don’t delay any longer, because the years soon pass.
Action this day
If you’re lucky enough to have a workplace pension employer contribution, this is where your retirement planning should start. At the same time, you shouldn’t rely only on that. You need to build a separate fund of savings under your own steam, and one of the best ways is investing in a Stocks and Shares ISA.
You can set one up quickly and easily with a host of low-cost investment platforms, load funds with your debit card, and start trading immediately.
Many investors will be wary of today’s stock markets which, despite have enjoyed a 10-year bull run, are menaced by coronavirus-related issues. The first thing to say about that, is investors always have something to worry about. If it wasn’t the virus, it would be the US trade war with China, Middle East tensions, slowing growth, and so on.
If you use short-term worries as an excuse not to invest, you’re likely to find yourself have no savings at 50, either.
Also, experienced investors turn bouts of political and economic uncertainty to their advantage, by taking the opportunity to pick up stocks at reduced prices. History shows stock markets always bounce back given time, so you should aim to buy shares both through thick and thin to generate the best returns.
If you still feel nervous, set up a regular monthly direct debit to your online platform, because that way you don’t have to worry about short-term noise, as you spread the risk by investing steadily throughout the ups and downs.
Now I’m being ambitious in this article, with talk of building £1m portfolio in 25 years. But it can be done, provided you are willing to pump enough money in. Assuming stock markets grow at 7% a year, you can get there by investing £1,250 a month.
Stick with it
If you have 30 years, you can reduce that to around £833 a month. That’s still a lot, but don’t despair, because, at 40, you may have built up some investments which you can put towards your total. Also, even if you don’t make a million, by putting aside all you can afford from spare income each month, and increasing your contributions when you have pay rises or bonuses, you may get closer than you think.
Even if you fall short of a million, you’ll still have a much bigger nest egg than if you never tried at all, making for a more comfortable retirement. Better still, your ISA savings are free of tax.
The alternative is to do nothing at all. In 25 years, you’ll kick yourself.
Harvey Jones 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.