According to a survey from consumer magazine Which? most retirees believe they cannot survive on the State Pension alone.
At the time of writing, the current full new State Pension is £168.60 a weekm or £8,767.20 a year. That’s around half of what most future retirees believe they will need to live on in retirement.
The good news is, it’s relatively easy to boost your pension pot. All you need to do is stick to a defined saving and investing plan.
Building the pot
Unfortunately, it isn’t possible to double your State Pension overnight without any work. I estimate a saver will need to put away around £220,000 to have enough to double their State Pension income in retirement.
The best strategy to reach this target is to invest. Over the past 10 years, the FTSE 250 has produced an average annual return for investors around 10%, including dividends. At this rate, I calculate that it would take a saver 30 years, saving £100 a month, to hit that £220,000 target.
If you don’t have three decades to save, you can still hit this target. You will just have to put away more money every month. If you only have 20 years to go until retirement, saving £300 a month will get you to the £220,000 pension target, assuming an average annual return of 10%. If you only have 10 years to go, I calculate a deposit of £1,100 a month will be required at this rate of return.
These figures are just back-of-the-envelope calculations and exclude costs and charges. They also exclude taxes and tax benefits, which are available if you invest through a SIPP.
Within a SIPP investment, you’re entitled to tax relief up to £40,000 a year at your marginal tax rate. So, if a basic rate taxpayer wants to add £100 to their pension, all they need to do is deposit £80 and the government will add another £20 on top.
This means if you have 30 years to go until you want to retire, you only need to put away £80 a month, excluding the tax benefit, to hit the £220,000 savings target. If you have 20 years to go, the £300 a month saving required will be just £240 a month, and £880 for the 10-year saver.
The bottom line
So, that’s the simple trick I’m using to double my State Pension. Investing in a SIPP is a great way to accelerate the growth of your pension pot.
The 20% tax benefit means you’re immediately up on your initial investment and don’t need to put away as much as you would if this bonus didn’t exist. On top of this, the stock market is a great way to rapidly grow your wealth over the long term without having to lift a finger.
With high-single and double-digit annual returns offer from some of the biggest companies in the country, in my opinion, investing in the market is a no-brainer if you want to improve your income in retirement.
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Rupert Hargreaves owns no 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.