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No savings at 50? How I’d use the FTSE 100 to get rich

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If you have no retirement savings at 50 years of age, there’s no need to panic. It’s never too late to start saving for the future, especially when you can make the most of investment tools such as the FTSE 100

How to retire on the FTSE 100 

Even though the recent performance of the FTSE 100 has been underwhelming, over the long term, the index has been an excellent investment. 

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Over the three decades since its inception, the blue-chip index has produced an average annual return of 9% for investors. At this rate of return, investors would see their money double in value roughly once every eight years. 

The index has still yielded this performance despite dropping nearly 50% on two occasions. The FTSE 100 has experienced some severe falls in the past, but it has always recovered strongly. 

As such, the index may recover strongly from its current setback in the long term. And investors can make the most of the wealth-creating abilities of the FTSE 100 by using a tax-efficient wrapper such as a SIPP. 

Building the pot 

SIPPs are a great tool to use to save for the future when combined with the FTSE 100. The main benefit of using a SIPP to save for the future are the tax benefits offered. 

For example, contributions attract tax relief at your marginal tax rate. That’s 20% for basic rate taxpayers. So, for every £80 contributed, the government will add an extra £20 to take the total to £100.

The biggest drawback of using a SIPP is the fact that money cannot be withdrawn until the owner is 55 years of age. What’s more, you can only take out a 25% tax-free lump sum. Any money withdrawn after that is taxed at your marginal tax rate. Still, with some careful tax planning, this should not be an issue. 

The combination of a SIPP and the FTSE 100 may help an investor get rich from 50 years of age. 

Assuming a retirement age of 65, and an income of £25k a year in retirement, a saver would need to build a nest egg worth £625k. That would require savings of £1,650 a month, assuming the money is invested in the FTSE 100. 

The monthly requirement falls after adding in SIPP tax benefits. A saver would only need to add £1,300 a month, excluding the government tax bonus. The bonus of 20% would then take the total to £1,650. 

Using this approach, it could be straightforward to retire on the FTSE 100 with no savings from 50 years of age. 

By pushing back the retirement date, it’s possible to increase the final pension pot. After 20 years of saving £1,650 a month, for example, an investor could build a nest egg worth £1.1m. 

The bottom line

So, if you’ve reached the age of 50 without any savings, now is the perfect time to start investing in the FTSE 100. Doing so could help you retire rich in future. 

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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.

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