While many people have dreams of enjoying a comfortable retirement, the reality is that this may no longer be possible on the State Pension alone. It amounts to just over £8,500 per year, and the age at which it can be drawn is set to increase over the coming years. In fact, it would not be a major surprise for it to be paid when an individual reaches 70 over the next couple of decades, with longer life expectancy and its large costs likely to be the main drivers of the political debate.
Income potential
As a result, many investors will need to plan for retirement using a Lifetime ISA, SIPP or employer pension. All three products have their own pros and cons, and could help to build an individual’s retirement savings so that they provide a significant nest egg by the age of 65.
In terms of where to invest capital in those products, the FTSE 100 continues to have significant appeal for individuals still working, and for those who have already retired. Despite enjoying a 10-year bull market, the index seems to offer excellent value for money at the present time. It has a dividend yield of around 4%, which suggests that it is cheap and could deliver high income returns over the long run. As such, now could be a good time to buy a number of stocks within the index.
Growth potential
While the FTSE 100 may have a dividend yield of 4%, it is relatively straightforward to generate an even higher income return at the present time. In fact, 28 shares in the index have a dividend yield of over 5%. This is likely to be sufficient to fill an entire portfolio, and could mean that an investor requires minimal capital growth in order to achieve an impressive total return in the long run.
Of course, stocks with high dividend yields can offer good value for money. In the FTSE 100’s case, a number of its higher-yielding shares offer a potent mix of sound growth prospects, strong balance sheets and wide economic moats. However, investors do not seem to be especially interested in them, with a focus on cyclical stocks making defensive shares relatively cheap. This could suggest that they offer long-term growth potential, as well as resilient earnings prospects and high yields.
Investment prospects
Whether an investor is focused on capital growth or on an income in the short term from their portfolio, higher-yielding FTSE 100 shares could offer investment appeal. They may not be among the most exciting stocks in the FTSE 350, with a number of other stocks providing greater excitement at a time when many investors are focused on areas such as the fourth industrial revolution and technology change.
The reality, though, is that the current bull market and economic boom will come to an end over the coming years. A focus on better-value shares with high yields could therefore be a sound means of providing for retirement during a period where the State Pension is set to become even less generous.
