So, you’re 40 and you’re almost as close to retirement as you are leaving school. If that thought sends a shiver down your spine, you’re not alone. According to a report by Open Money and YouGov, one in five Britons has no accessible savings. If this is you, being able to retire rich may seem like a pipe dream.
However, don’t give up hope, because I think that not only is it possible to accumulate that nest egg, but it may be easier than you realise.
No savings? Start with a Stocks and Shares ISA
The first thing to do is to get a Stocks and Shares ISA. These tax-efficient wrappers are a bit like self-storage for investments. Choose your provider, apply for your ‘container’, in the form of the ISA wrapper, then fill it up with investments. These investments are now protected from both income and capital gains tax. And you don’t pay tax on dividends either, provided you hold them within the ISA, even as a higher rate taxpayer.
So, you can build up your savings without having to worry about tax liabilities. And with a Stocks and Shares ISA, your money is not taxed on withdrawal. Moreover, setting up a direct debit each month drip-feeds a regular amount of money into your account so eventually you don’t even notice you’re investing.
Invest in the FTSE 250 to retire rich
The FTSE 250 has returned a gain of 2.8% on share prices over the last five years. This is by comparison with the FTSE 100‘s 0.2%. Over the last 10 years, the returns are 10% and 1.2% respectively. This is why I like the Footsie 250. Yes, it can be slightly more volatile, but the returns are better. And over time, these add up.
Indeed, at the 10% rate, a saving of £500 per month for 26 years to take you to State Pension age, will accrue to around £655,000 yfor our retirement. If you really want to push the boat out, I calculate that for around £764 per month, you could be a millionaire by the time you’re 66.
However, this does assume that you make some good investments. One of the ways to do this is with a tracker fund to mirror the performance of the index. Alternatively, the above figures I’ve used don’t take into account any dividends. Ploughing dividend payments back into an ISA is always a good idea to make the most of your investments. It’s increasing the amount you have invested over time in a way that doesn’t increase your monthly outgoings.
If you’ve let the past 20 years roll by with no savings, that doesn’t mean you have to continue in the same way. I think you can retire rich by getting a Stocks and Shares ISA, putting a little away each month and investing in the FTSE 250.
