How much is the State Pension now? A full pension today would get you £9,110, or £18,220 for a joint income for two people. That doesn’t seem like a lot of money these days, and it really isn’t. My Motley Fool colleague Royston Wild has pointed out the increasing shortfall between that and the average pensioner’s monthly needs.
Things could get even worse. We currently have a thing called the triple lock. That guarantees annual pension rises by average earnings growth, inflation, or 2.5%, whichever is highest. The folks in government have never much liked the idea of doing even that minimum for pensioners. And the costs of dealing with the Covid-19 pandemic are giving them a new excuse for rethinking it. It’s still with us for now, but I wouldn’t like to guess for how much longer.
Beyond the State Pension
We need to make our own old age provisions, and for me it’s UK shares. Ideally using an ISA and/or a SIPP, each of which carries different tax benefits. I use both myself. But hasn’t the 2020 stock market crash shown just how risky it can be investing in shares? What if you’d chosen to retire this year and suddenly the value of your investments had slumped?
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I have a friend in exactly that position, who’s debating when to retire. He could stop work now, or carry on for another 10 years — and it’s nice to have that choice. He has money invested in FTSE 100 shares. And yes, that investment has fallen in value this year. But it doesn’t affect his retirement plans, for one very good reason: even if he should choose to retire tomorrow, he simply wouldn’t want to sell all his shares.
Not selling anyway
In fact, he probably wouldn’t sell any, as he’d have enough from his State Pension, a work pension, cash, and dividend income to live well on. To be realistic, if you retire today aged around 60 or so, you could easily have another 20 or 30 years ahead of you. So if you couldn’t make it through the 2020 crash, you probably wouldn’t be in a position to retire anyway.
Warren Buffett famously said that you should only invest in shares if you’d be happy for the market to shut and not open again for 10 years. On that basis, never mind selling up when you retire. Most people in their 60s should have enough time left to start investing.
FTSE 100 stocks I’d buy
For a retirement portfolio, I’d go for a diversified range of FTSE 100 shares, mostly those I expect to provide reliable long-term dividends. That would include stocks like National Grid and SSE, for dependable income, and GlaxoSmithKline and AstraZeneca for a combination of dividends and growth. I’d also consider a couple of banks or insurance companies. The latter can be particularly volatile, but over a period of at least a decade, I think they’re very likely to come good.
Then I’d be looking at Tesco, Unilever, and Taylor Wimpey which satisfy long-term needs. In fact, all of these stocks share one thing — they all provide essential goods and services. I expect them to easily beat the State Pension.
