If you’ve hit 50 with no savings for retirement, all is not lost. You can start putting things right today, but you must take firm action.
I recently punched out an article recommending that you immediately start saving as much as you can each month. Then put the money in places where it will work hard for you, such as in a Workplace Pension, Personal Pension, Self-Invested Personal Pension (SIPP) or an Individual Savings Account (ISA).
Investment ‘wrappers’ with tax advantages
Within those wrappers, which shelter you from taxes, it’s no good putting the money in cash savings if you want it to grow for your retirement. The top cash ISA rate at the moment, for example, is around 1.38% AER. That’s below the rate of inflation so, over time, your money will lose some of its spending power, which is the opposite outcome from what you want for your retirement savings. Instead of cash, I reckon a promising way forward is to put money into shares or share-backed investments within your SIPP or ISA accounts.
I’m assuming that if you are near 50 now you will be aiming to retire when you are 67 because that’s the government’s State Pension age for people in their fifties now. So at 67, you’ll get the New State Pension, which works out at about £8,546 per year, which you can build on with your own retirement savings. But you’ve only got 17 years to build your nest egg if you are 50 today, so I think you need to steer clear of taking big risks on the stock market.
Investing for steady gains, not get-rich-quick
I reckon it’s probably a good idea to avoid investing in high-risk and potentially high-reward smaller individual shares and concentrate on making steady progress instead. One way to minimise the risk is to invest in managed funds and investment trusts. Another way is to go for a collective, diversified, low-cost index tracker fund, such as one that follows the fortunes of the FTSE 100.
Or you might choose to pick individual shares backed by good-quality companies that pay reliable dividends. One of the main principals that will help to build up your savings is compounding. All the share investments I’ve mentioned will pay dividends which, when ploughed back in (often automatically with many funds), will help your savings and investments compound and grow.
If I’ve whetted your investing and saving appetite, you might be wondering how to get started. I’d recommend taking a good look around the websites of the firms that provide ISA and SIPP accounts. Hargreaves Lansdown, for example, has a wealth of information that will help you with the nuts and bolts of setting everything up. Do explore the Motley Fool website as well, where you’ll find information that answers a lot of the questions you might have. And stay tuned in to our articles, which we plan to keep sending out!
