The State Pension isn’t large enough to fund the retirement of your dreams. In fact, it doesn’t even come close. The new State Pension gives you just £175.20 per week. That works out as £9,110.40 a year, roughly a third of the average national full-time salary. If you are relying on that for your final years, things could be rough.
A lot of people spend their time worrying about the State Pension, but don’t do anything about it. Avoid falling into that trap. Instead, look to build the money you need to enjoy a comfortable retirement, by investing in UK shares.
Nobody makes a fortune on the stock market overnight, despite what many people think. It takes time and effort. So if you have money to spare, don’t leave it any longer.
Don’t worry about retirement, do something
I would suggest backing up the State Pension by investing in the following two FTSE 100-listed investment trusts. These are companies whose business is managing a balanced portfolio of shares for income and growth.
The biggest and best known is Scottish Mortgage Investment Trust (LSE: SMT), which now runs £14.3bn worth of assets. Over the last five years, it has smashed the FTSE 100 and almost every other UK investment fund, with a total return of 300%.
It has largely done this by making a big call on the buoyant US stock market. More than half the fund is invested in the US, in big names such as Tesla, Amazon, and Netflix. As a result it has benefited from the tech boom.
It isn’t just a US fund, though. Roughly a fifth is invested in China, notably tech giants Tencent Holdings and Alibaba Group, and slightly less in Europe. If you mostly hold UK shares or funds, that could give you some much-needed diversification, away from your State Pension.
As with any fund, Scottish Mortgage may not always outperform. Also, it offers only a tiny dividend yield, just 0.34% a year.
Income on top of your State Pension
If you want income, you could balance this with the UK’s second-biggest investment trust City of London Investment Trust (LSE: CTY). This equity income fund yields a whopping 5.86% a year, mostly from renowned FTSE 100 dividend-payers such as British American Tobacco, Diageo, Unilever, GlaxoSmithKline, and Royal Dutch Shell. Scottish Mortgage gives you global growth, City of London gives you UK income.
If you invest a regular monthly sum in both, you should steadily build your wealth over time. When you retire, you could draw the natural yield from City of London to provide the income you need to top up your State Pension.
You can take lump sums from Scottish Mortgage, as and when. Remember, if you invest inside a Stocks and Shares ISA, both income and growth will be free of tax.
If you invest in these two funds, you can start building the wealth you need to reduce your reliance on the State Pension.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Amazon, Netflix, and Tesla. The Motley Fool UK has recommended Diageo, GlaxoSmithKline, and Unilever and recommends the following options: short January 2022 $1940 calls on Amazon and long January 2022 $1920 calls on Amazon. 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.