This financial year, the full basic State Pension you can get is £175.20 per week. This amounts to around £9,110.40 a year.
However, the actual amount retirees receive will depend on their National Insurance contribution record. To get the full weekly amount, a pensioner will need to have 35 qualifying years on their file. The minimum amount required is 10 years.
Several other factors go into the State Pension calculation as well. So, the final figure will vary from person to person. However, as a benchmark, the figure of £9,110.40 seems appropriate.
Is the State Pension enough?
Is £9,110.40 enough to live on in retirement? Surveys suggest it is not. Indeed, according to analysis from consumer magazine Which? retires need on average £20,000 a year in income at least to retire in comfort. That figure includes eating out once a week and at least one holiday a year.
Even to cover basic expenses, Which’s research suggests that the State Pension is not enough. To cover the basics, the magazine reckons retirees will need around £14,000 a year in income. Both of these situations assume retirees own their own home.
Based on these figures, it seems many retirees cannot survive on the State Pension alone. As such, it may be sensible to build up your own private nest egg as a back-up.
The best way to build a private pension to beat the State Pension is to open a self-invested personal pension. SIPPs are one of the best tools to use to save for the future.
Any money you contribute attracts tax relief at your marginal tax rate. That’s 20% for basic rate taxpayers. So, for every £80 you contribute, the government will add £20 on top to take the total to £100. On top of this, any income or capital gains earned on investments held within a SIPP is tax-free.
Owning FTSE 100 stocks may be the best way to grow your money in a SIPP.
Over the past 35 years, the FTSE 100 has returned around 8% per annum. Even though the market has experienced several severe downturns during this period. In other words, the stock market has a strong track record of not only recovering from its downturns but also in delivering new record highs.
That said, not all of the index’s constituents have produced such attractive returns. Some have struggled to provide a positive performance. Therefore, sticking with high-quality shares with strong balance sheets may be the best investment strategy if you want to beat the State Pension.
The returns available to investors who buy while the index offers a margin of safety could be much higher than those of the broader market. That suggest that now could be a great time to start buying stocks after the recent stock market crash.
As noted above, the FTSE 100 has a strong track record of recovering from market slumps and going on to print new highs. Therefore, buying stocks right now could be a sound strategy for SIPP investors looking to generate significant returns over the coming years.
If you're looking for other investments to get your portfolio started, our favourite retirement stock picks are highlighted in the report below.
Markets around the world are reeling from the coronavirus pandemic…
And with so many great companies trading at what look to be ‘discount-bin’ prices, now could be the time for savvy investors to snap up some potential bargains.
But whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be daunting prospect during such unprecedented times.
Fortunately, The Motley Fool is here to help: our UK Chief Investment Officer and his analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global lock-down…
You see, here at The Motley Fool we don’t believe “over-trading” is the right path to financial freedom in retirement; instead, we advocate buying and holding (for AT LEAST three to five years) 15 or more quality companies, with shareholder-focused management teams at the helm.
That’s why we’re sharing the names of all five of these companies in a special investing report that you can download today for FREE. If you’re 50 or over, we believe these stocks could be a great fit for any well-diversified portfolio, and that you can consider building a position in all five right away.
Rupert Hargreaves 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.