Do you know that the State Pension currently pays only £9,110.40 per year? If you’re already 50, or are approaching 50, and have no savings, this is the annual amount you can expect to draw on in your retirement.
In addition, you’ll only get this full amount if you’ve made all your qualifying National Insurance contributions. If not, you’ll get even less.
However, there’s a way to double your State Pension income for retirement. But, you need to start now. Here’s what I’m doing.
State Pension maths for retirement
By my calculations, at the above rates, I’d require a ‘pension pot’ of £182,208 to enable me to be paid £9,110 each year for 20 years. This means that from now, and until I reach an assumed pension age of 68, I need to ‘find’ this amount to double my State Pension income.
Although it seems like a huge amount, it’s entirely possible. How? By investing the in the FTSE 250.
The FTSE 250 index has returned an average of 7% over the last 10 years. And this includes lower returns due to the recent devastation caused by the coronavirus-linked economic shutdown. Prior to this, in January this year, the index had returned an annualised average of over 13%.
Assuming the lower return will continue, £447 invested each month into the FTSE 250 until I’m 68 will enable me to double what I get from my State Pension.
Moreover, if I use my Stocks and Shares ISA to invest, I’ll legally avoid paying tax on any returns.
However, given the FTSE 250’s lower rate of return is due to the damage caused by an unusual event, in the absence of another catastrophic event, I think it’s likely any returns could be greater than this.
Which is why it’s so important for me to start investing in the index now.
Start now to improve returns
If I begin now, the FTSE 250 is still recovering from its knock-back of earlier this year. This means stocks are selling at lower prices, reducing any costs of making the investments. It also means the potential for recovery back to pre-lockdown prices is greater, maximising my earnings.
However, there’s another reason to begin now. I can use the miracle of compounding to increase my returns. This enables my investment earnings to generate more earnings. So, the earlier I start, the harder my money works on my behalf and the more savings I’ll make for my retirement.
Now is the best time to start building on your State Pension future income for retirement, especially if you have no savings. Beginning now will allow you to maximise your returns from compounding interest and from the earlier large dip in the FTSE 250. It’s what I’m doing. What are you waiting for?
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