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Forget the Cash ISA! I’d invest £5k in these FTSE 100 shares to retire early

Saving for your retirement in an ISA can be a challenge for millions of people.

The cost of modern living is quite high, and by the time you pay the essentials there is often very little left in the pot for the nice things in life. So putting aside money for when you retire is at the very bottom of the list of many peoples’ priorities. According to Lloyds Bank just a third of UK adults save money on a regular basis.

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Rock-bottom rates

For those who have the capacity and the will to save money, it’s important to make the most of your sacrifices. Why give up that amazing holiday or new car, for example, only to have little to show for it by the time you retire? But it seems that millions of people remain content to do just that by parking their money in a low-yielding cash product.

Take the Cash ISA, for example. Interest rates on these accounts have been trekking lower in recent years. And the rates offered on most have fallen further following recent Bank of England action. More reductions could be in store too, should Threadneedle Street have to cut its benchmark even further from current record lows of 0.1%. Speculation over this scenario continues to gain ground as the British economy tanks.

A better ISA

So what does the best-paying Cash ISA currently yield? Well, according to Compare The Market, Penrith Building Society offers the highest interest rate of 1.25%. I’m afraid that, as a long-term share investor, this figure doesn’t get my heart racing. Holders of Stocks and Shares ISAs like me can realistically expect an annual return of between 8% and 10% on their investment over, say, 10 years or more.

Cash ISAs clearly have their place. I myself have one and use it solely to stash ‘rainy day’ money. I don’t make the mistake of using it to build my retirement nest egg. That simply isn’t going to happen based on current interest rates.

This is why I’ve built a shares portfolio comprising FTSE 100 shares (and ones from lower indices) to help me to retire in comfort. And it’s why I plan to continue adding to my Stocks and Shares ISA despite recent volatility on financial markets.

Close-up Of A Piggybank With Eyeglasses And Calculator On Desk

A world of opportunity

The Covid-19 crisis means that investors need to be that bit more careful before taking the plunge. Lockdown measures are being reversed in many parts of the globe, sure. But profits and balance sheets are set to remain under severe pressure as the economic impact of the pandemic develops. But that doesn’t mean individuals should seek the safety of low-yielding Cash ISAs instead.

The healthcare sector is one that tends to be ‘recession proof.’ So why not buy shares in drugs developers GlaxoSmithKline or AstraZeneca, for example? The same can be said for utilities providers like power specialist National Grid or water supplier Severn Trent, as well as defence giant BAE Systems and telecoms providers like Vodafone. With the right strategy, it’s still possible to make a great return on your savings from share investing.

A top income share that boasts a reliably defensive business model… plus a current forecast dividend yield of 4.2% to boot!

With global markets in turmoil as the coronavirus pandemic tightens its grip, turning to shares to generate income isn’t as simple as it used to be…

As the realities of ‘life under lockdown’ begin to bite, many of the stock market’s ‘go-to’ high-yielding companies have either taken an axe to their dividend pay-outs… or worse, opted to suspended them altogether – for the near-term at least.

With so many blue-chip and mid-cap companies scrambling to hoard cash right now, where are we income investors to turn for decent yields?

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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended GlaxoSmithKline. 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.