Retirement years can be expensive. For many people, their golden years will likely last a couple of decades. Spending only £20,000 or £30,000 per year can amount to a considerable sum in that time frame. Therefore we must all prepare for it well in advance.
Yet there’s good news for all of us. If you’d like to be wealthy in retirement, regular and long-term investing can help considerably. And as many FTSE shares rebound from their recent lows, they also offer considerable long-term investing value. Let’s see why.
Retirement knowledge is power
As people near retirement, their biggest worry centres around money, or rather the lack of it. Surveys point out that many people over the age of 55 have low levels of monetary wealth and very little in assets other than their homes. A large percentage believe they’ve failed to plan for retirement adequately.
Financial knowledge and planning are clearly related. People with higher financial literacy are more likely to plan successfully for retirement. But you don’t have to be a financial guru, or insider, to make sensible plans for your future.
The first step would be to think about how much your retirement may cost and how you’ll pay for it. Then look at the various financial products available to save for retirement. One of the key channels in which you could invest your hard earned money is the stock market.
Long-term is the name of the game
My Motley Fool colleagues have written at length about funds and stocks to consider for a diversified retirement portfolio. They’ve pointed out that the stock market returns about 6-8% annually, on average. And that includes market sell-offs like we’ve recently witnessed.
Let’s assume you’re aged 25, would like to invest £2,000 in a fund now, and would make an additional £3,600 of contributions annually at the end of the given year. That means you have at least 40 years to invest. The annual return is 7%, compounded once a year.
At the end of 40 years, the total amount saved becomes £798,943. If the annual return increases to 8%, the amount becomes £1.050m. Yes, that would mean you’d retire a millionaire!
If you can increase how much you can save per month, say to £400 (or £4,800 a year), the amount at the end of 40 years at an annual return rate of 8% is £1.386m.
Put another way, we can pretty much all become millionaires in our lifetimes. Just remember to start early and invest a definite amount regularly each month.
FTSE shares
The London Stock Exchange is home to many companies that have made long-term investors wealthy.
In the FTSE 100, I believe BAE Systems, British American Tobacco, GlaxoSmithKline, Pennon Group, Tesco, Unilever and Vodafone could be solid picks for a personal pension portfolio.
If the FTSE 250 is on your radar screen, then you may research the fundamentals for Britvic, Centamin, Dechra Pharmaceuticals, Moneysupermarket, and Tate & Lyle.
A diversified portfolio is always recommended. But you don’t necessarily have to look for the next big company set to skyrocket to success.
You may also consider investing via Exchange Traded Funds (ETFs), which you can easily buy or sell like you would any other share. An example would be the iShares UK Dividend UCITS ETF which is a basket of the 50 highest-yielding stocks from the FTSE 350 Index.
