If you are relying solely on the State Pension to fund a comfortable retirement, you need to think again. The state payout simply isn’t big enough to do that.
Right now, it is worth a maximum of just £168.60 a week, or £8,767.20 a year. You need to make a grand total of 35 years of qualifying National Insurance contributions to get that maximum, and many will fall short.
I think the best way to make up the gap is to invest in the stock market, as this can generate the growth you need to build up your retirement wealth, as well as heaps of dividend income, which you can use to top up your pension in retirement.
Target a passive income
One way to do this is to invest in funds tracking the major UK indices, such as the FTSE 100 and FTSE 250. However, you could aim to turbo-charge your returns by investing in individual stocks as well, of which there are plenty to tempt you right now. You can use them to generate a rising passive income in retirement.
High street giant Barclays (LSE: BARC) could prove an excellent way of generating capital growth from rising markets, and income from a generous dividend.
Barclays, like the rest of the banking sector, is still piecing itself together after the financial crisis. It has slimmed down its sprawling global operations, disposed of poorly performing operations, and adjusted to a much tougher regulatory climate.
The banking sector landed us all in trouble during the financial crisis, and the recovery was never going to be easy. For many years, the big banks didn’t even pay dividends, as they focused on repairing their balance sheets.
The Barclays share price is climbing
As a result, the Barclays share price trades about a third lower than it did a decade ago, as the clean-up job proves greater than many anticipated. However, it has been showing signs of life lately, up an impressive 25% in the last six months. While there is no guarantee the Barclays share price will repeat that over the next six months, in the longer run it should make a strong buy and hold.
Despite that, the shares are still trading at a rock-bottom valuation of just 7.5 times forecast earnings, well below the FTSE 100 average of 18.79 times. This gives you a cushion if stock markets go through a bumpy period.
Performance at Barclays is improving despite controversies. Dividends are rising. Right now, it offers a forecast yield of 5.5%, far better than any savings account. Better still, that is covered 2.4 times by earnings, which shows Barclays is generating enough cash to fund this payout.
Earnings are forecast to rise 59% this year, and a steady 6% in 2021. By then, the yield may hit 5.9%. Keep reinvesting those dividends for growth, to build your position in the stock, then take them as income, to top up whatever measly sum you get from the State Pension.
Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has recommended Barclays. 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.