The days of being able to reply on the State Pension to carry you through your old age appear to be long over. At just £164 per week, it amounts to just over £8,500 per year and with all of us living longer, that’s not a great prospect. Given that the average salary in the UK is more than three times that figure, the State Pension appears to be inadequate on its own.
The good news, though, is that it has never been easier to generate a significant nest egg by the time of retirement. There are a number of options in place for individuals both before and during retirement which could help them to overcome a meagre State Pension.
Varied opportunities
While in the past an individual had the opportunity to invest in a workplace pension and little else, today there are a number of different opportunities available alongside it. Certainly, a workplace pension is highly appealing, given that the amount contributed to it is tax-free and is often matched by an employer contribution. However, for people who want to retain greater flexibility around exactly when they retire, as well as having access to their pension before they choose to do so, products such as an ISA or Lifetime ISA could be worth it.
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An ISA allowance of up to £20,000 per year means that it could be an appealing means for a range of individuals to build a nest egg. The lack of capital gains tax from profit generated within an ISA, as well as dividends not counting towards the dividend tax allowance, means that it could prove to be a worthwhile tax shelter in the long run. Meanwhile, a Lifetime ISA adds a government bonus of 25% to contributions each year versus any other ISA. It can also be used to fund the purchase of a first home, which provides younger investors with even greater financial flexibility.
FTSE 100
Of course, having the right products at the wrong time is likely to be of little use when it comes to building a fund for retirement. Fortunately, the FTSE 100 continues to offer growth potential for the long run for anyone, not just young savers. It has a dividend yield of just under 4%, which is relatively high and suggests that it may be undervalued. Furthermore, a number of stocks within the FTSE 100 seem to offer wide margins of safety given the positive outlook for the global economy. And with it being quite straightforward to buy shares yielding more than 5%, generating a high income in retirement may be easier than many people realise.
Clearly, the State Pension is a worthwhile income to have in retirement. It could help to take the pressure off a personal pension or ISA. But with people living longer and the retirement age increasing, now may be the right time to focus on retirement savings. With a range of products available and FTSE 100 share prices seemingly attractive, the prospects for retirement-focused investors seem to be bright.
