Shocking statistics just released by the Department for Work and Pensions (DWP) have revealed the financial plight of many of today’s pensioners. And that’s why it’s so important for me to keep building up a second income to use in retirement alongside my State Pension.
Pensioners facing financial austerity
We’ve known for a long time that relying on the State Pension alone in retirement could lead to a life of financial austerity for many. But senior pensions and retirement analyst Helen Morrissey at Hargreaves Lansdown has added colour to the picture.
From the DWP report covering the period from November 2020 to May 2022, Morrissey discovered the average weekly amount of new State Pension received by women is running at around £170. And men aren’t faring much better with an average of just under £176.
However, State Pension payments depend on an individual’s National Insurance (NI) contribution record. And that means periods of unemployment, career breaks and part-time working could all have led to a patchy NI record for many. The DWP report revealed the extent of the problem. It shows that more than 1.8m people received less than £100 per week in State Pension. And of those, about 1.4m are women.
It’s true that pensioners on low incomes can often claim top-up benefits such as Pension Credit. But I’m determined to address the issue of my future financial security. And for me, that means building up the means to draw a second income in retirement by investing in stocks and shares now.
Stocks and Shares ISA
And I’d aim to build up my investments in a Stocks and Shares ISA. I like ISAs because of the tax benefits. Currently, there’s no tax to pay on capital gains if my shares go up in value. And there’s no tax on income coming into the ISA from dividends. On top of that, no income tax is payable when drawing money out of an ISA account.
However, the money I pay into an ISA will have had income tax and NI deducted. There’s no relief on that. But I reckon the concept of untaxed gains is worth taking advantage of if I can. But, in fairness, the tricky part is securing gains from my investments in the first place. Indeed, my money will be at risk owning stocks and shares because they will have the potential to fall in value as well as rise.
But there’s a wealth of investment strategy advice and literature out there to guide me. And as a starting point, I’d aim to follow the teachings of perhaps the most well-known investor of them all, billionaire Warren Buffett. He advocates investing in low-cost index tracker funds and individual stocks that have been selected with care and after thorough research.
Investment outcomes are never certain or guaranteed. But I’d aim to mitigate some of the risks involved in stocks and shares ownership by adopting a long-term approach and by investing regular sums into my ISA rather than putting in a single lump sum.
