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Forget the State Pension, a Stocks and Shares ISA may be all you need

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Despite this article’s snappy headline, I don’t think you should literally forget the State Pension. Indeed, the government’s provision for your finances in your senior years can form an important part of your retirement planning. So, whatever you do, don’t forget to claim it when the time comes!

The State pension age is changing

However, the time for claiming the State Pension is moving further away, as previously flagged by the government. The days of getting it at age 65 are gone. Those retiring now must be 66 to get it. I won’t reach my State Pension age until I’m 67. People younger than me will have to wait until 68. And the government is on course to push the State Pension age even higher.

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But it could be worth waiting for. Indeed, the full new State Pension is £175.20 per week, which works out at just over £8,954 per year. However, the actual amount you get depends on your national insurance record. But historically, those with a patchy record of national insurance contributions on reduced State Pensions have often been eligible for top-up benefits.

Given all the financial strain in the economic system, though, I wouldn’t want to rely on the possibility of top-up benefits when I retire. Indeed, they may not be there to have. And the State Pension by itself is a meagre amount of money to survive on even you qualify for the full amount.

It’s a good idea to build your own retirement pot to provide an income in retirement alongside your State Pension. Of course, many people do that with a workplace pension, a personal pension or a Self-Invested Personal Pension (SIPP), or perhaps all three. And that’s a good idea. Pensions of all kinds give you tax relief on the money you invest in them, and it’s worth having. And workplace pensions are particularly smart because your employer often puts money in for you on top of your own contributions.

Aiming for a million

But it’s worth considering building up an investment pot within a Stocks and Shares ISA too. You’ve probably heard stories about the UK’s growing army of ISA millionaires. Indeed, by investing regularly and choosing investments carefully, hundreds of people have built their Stocks and Shares ISA accounts up to and beyond the magic million. And that would be ideal for providing a decent income in retirement for most folk.

Currently, the annual ISA allowance is £20,000 per year. And that means up to £20k and all your investment gains can be sheltered from tax. Even if you can’t put as much as that into your ISA, regular deposits will help you build up a sizeable nest egg. So, I’d set up a monthly transfer and aim to compound my investments so the balance grows over time. Indeed, historically, shares in aggregate have out-performed all other major asset classes over time. So, if you invest in shares and share-backed vehicles such as funds you’ll stand a good chance of growing your savings for retirement.

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Kevin Godbold has no position in any share 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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