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Can you really survive on the State Pension alone?

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. 

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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. 

SIPP benefits

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.

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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.