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Forget the State Pension. I’d drip-feed £175.20 a month into a SIPP to retire rich!

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At just £175.20 a week, I know the new State Pension is unlikely to give many the lifestyle they crave in their golden years. 

But don’t despair! Today, I’ll show how investing this exact amount every month into a Self-Invested Personal Pension (SIPP) can be the pathway to wealth, even millionaire status! Let’s start by revising a few facts about the SIPP. 

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SIPP it to retire rich!

Anyone serious about growing their wealth for retirement should consider opening a SIPP. Like the Stocks and Shares ISA, this is a tax-efficient savings vehicle. It won’t involve paying capital gains tax on any profits made from the investments. There isn’t even any income tax payable on any dividends received from the stocks owned. Over time, this really matters.

There are a few other reasons for investing via a SIPP. Perhaps the most enticing of these is that any contributions made into the account qualifies for tax relief at a normal tax band. So, investors like me paying the basic rate (20%) will receive a 25% top-up from the government. In other words, £80 saved into an account becomes £100 after tax relief. 

Another positive is that I can save up to £40,000 in any one tax year. That’s double the ISA allowance!

£175.20 a month = retirement freedom

Back to the matter at hand. Let’s assume I’m saving the equivalent of the weekly State Pension (£175.20) into a SIPP every month. Thanks to the tax relief mentioned above, I would receive an extra £43.80 from the government, bringing the total monthly contributions to £219. Lovely!

Now, let’s assume I’m 40 years-old and I make these monthly instalments for the next 30 years. After all, there’s a possibility only those 70 and over might be able to access the State Pension by 2050

In 30 years, I will have saved a total of £78,840 according to my calculations. Let’s say this is invested this in the stock market and a penny wasn’t touched. I think I will be amazed by the results.

Wow! How much?

By 2050, that £78,840 will have grown to almost £175,000, assuming a 5% annualised return. As great as this sounds, the outcome could be even better if the chosen investments have performed well. 

A 10% annualised return would produce a little over £432,000 after 30 years. A 15% annualised return would make me a millionaire!

Of course, there are a few caveats. 

Keep costs low

Firstly, I must stress that there are no guarantees when it comes to returns. In reality, how much a person makes depends hugely on the age at which they begin investing and what they’re invested in. Small- and mid-cap companies tend to perform much better than big stocks over the long term, but they’re also far more volatile in the interim. 

Secondly, I’ve not taken account of any fees related to managing the SIPP, some of which will be unavoidable. Having said this, investors can keep costs low by not continually trading in and out of stocks. I’d just buy and hold.

In spite of these points, the numbers don’t lie. Look at how much money I could make by regularly saving into a tax-efficient account and trusting in the power of compounding!

I’d start investing the equivalent of the State Pension now and will be far less likely to be reliant on said State Pension in retirement.

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Paul Summers 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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