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Want a fantastic retirement? Here’s how I plan to never have to rely on the State Pension

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If I want to retire with enough wealth to live a happy life then I need to take action to avoid having to rely on the State Pension. I’m planning to never have to be in a position to need the – if there even is one by the time I retire – by being proactive and investing in the stock market. I have a SIPP already set up alongside my workplace pensions.

Not relying on the State Pension

With lifespans lengthening, the age someone will be able to claim a State Pension at is rising. A lot of the upward revisions have been in the last decade, meaning young people now may well not get it until their late 60s. 

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So again, there’s an absolute need to look after yourself when it comes to retirement. This is why I have a plan for my SIPP. In it, I’ll look for a wide range of equity (share) investments.

I’m concentrating on building a base of dividend-paying shares to provide me with an income and to benefit (over many years) from compounding. Many of these income-producing assets will involve directly investing in solid companies like National Grid, Persimmon and Legal & General. On top of that, to reduce my exposure to dividend cuts, such as we’ve seen this year, I’ll invest in trackers and investment trusts.

The strategy to avoid relying on the State Pension, therefore, prioritises income in the early years. This is the foundation of the portfolio, with growth added on top once income hits a certain point.

Injecting growth into my retirement fund

I’m now moving into the growth phase of my SIPP building. I’ve added my first AIM share in Polar Capital to it very recently. I’m now looking at more smaller-cap shares to add in order to boost the total return and to partially reflect the difficult market for income.

Terry Smith has said that it’s best to focus on total return and I’ve heard other investors say this as well. I’m becoming more and more inclined to agree. I think to avoid having to rely on the State Pension I’ll want to achieve above-average returns and smaller-caps can help me do that. That said, in my SIPP it’s unlikely I’ll hold highly speculative stocks as I don’t wasn’t to lose money. This would set back the compounding effect I’m looking for. So I’ll avoid very small biotechnology and mining stocks.

Instead, I’ll thoroughly research smaller companies that are profitable and that are either reinvesting for more growth, or are already paying a dividend.

I don’t think it’s wise to rely on the State Pension if I can avoid it. If I want financial independence, I believe it’s best to invest in a range of sectors and companies to create a portfolio that produces high total returns through dividends and share price growth. Companies and funds that I think can give me this will almost certainly end up in my SIPP.

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Andy Ross owns shares in National Grid, Persimmon, Legal & General and Polar Capital. 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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