The new State Pension pays just £175.20 a week. That works out at £9,110.40 a year, barely a third of the full-time national salary.
While this is a valuable safety net, it will not give you a comfortable retirement. All it does is cover the basics. If you want to retire in comfort, you have to look beyond the State Pension. That means building savings in your own name.
This will not simply give you a wealthier retirement. It also gives you the freedom to choose when you retire. This year, the State Pension age rises to 66 for both men and women. It will climb higher still as time passes.
If you have saved enough money under your own steam, you can decide when you are ready to stop working. Not the politicians.
The State Pension is only the start
A great way of building extra wealth for your retirement is to invest in FTSE stocks. These give you capital growth from rising share prices, and income from dividends. In the longer run, history shows shares beat almost every other asset class.
Some will be nervous because of recent stock market volatility. That is understandable. The global economy is only just emerging from lockdown. However, this could be an excellent time to buy shares to top up your State Pension, if you plan to hold them for the long run.
The stock market crash in March means top FTSE 100 stocks are now trading at far lower valuations than at the start of the year. The index as a whole is down almost 20%. Many solid companies are going cheap.
While the volatility may continue, that does not matter so much if you are investing for the long term. You can further reduce the risk by investing a regular monthly sum, rather than making a large one-off payment. That way you actually benefit from volatility. If share prices fall, your monthly payment will pick up more stock at the reduced price.
If you could stretch to £500 a month, you would start building wealth quickly. If you invested that every month for 30 years and total returns averaged 7%, including dividends reinvested, you will have an incredible £606,438. That would be a nice supplement to your State Pension.
Buy FTSE 100 shares today
That kind of money could make a massive difference to your retirement. Even if you can only afford, say, £150 a month, you would have £151,610. Again, that would dramatically boost your State Pension income prospects.
I would recommend investing in a spread of FTSE 100 shares inside a Stocks and Shares ISA. That way you can take all your returns free of income tax and capital gains tax. It is a hugely generous tax break.
If you don’t know where to start, The Motley Fool UK site is full of tips and recommendations for top FTSE 100 stocks. Spread your money between different companies to reduce risks. While some may fall in the short term, in the longer run, building a portfolio of shares offers an attractive supplement to the State Pension.
By investing monthly, and keeping your money invested for the long term, you can start looking forward to retirement, whatever happens to the State Pension.