If you have reached 60 years of age with no pension savings, there’s no need to panic. It is never too late to start saving for the future, and there are many tools to help you build a retirement nest egg with almost no effort.
Today I’m going to explain how you can take advantage of these tools to help you build your savings as fast as possible.
SIPP
The first step on your savings journey should be to open a SIPP. These self-managed pension plans are a fantastic tool for retirement savers. Anyone under the age of 75 can pay into a SIPP, which means that you can still take advantage of the tax benefits offered for nearly 10 years after the State Pension age.
Even if you are not earning, you can contribute up to £2,880 net each tax year and receive tax relief.
At present, SIPP savers are entitled to tax relief on any contributions at the marginal tax rate. That’s 20% for basic rate taxpayers. This means that for every £80 a basic rate taxpayer contributes, the government will top up the figure by £20 to make a total of £100 (depending on your marginal tax rate).
Start investing
After opening a SIPP, the next stage on any savings journey should be to invest. The most straightforward way to invest a nest egg for the future is to use a low-cost tracker fund. In this case, a FTSE 100 tracker would fit the bill perfectly.
Over the past few decades, the FTSE 100 has produced an average annual return for investors of around 9%. This rate of return is substantially better than the rate of interest on offer from most cash savings accounts today, and as I’m going to explain below, could help you turn even small monthly contributions into a large retirement pot.
Compound interest
Using a combination of the FTSE 100 and a SIPP, it is possible to build a savings pot between the age of 60 and 65 with the potential to throw off £8,000 per annum in income on top of the State Pension, potentially doubling your retirement income.
According to my calculations, contributions of £2,160 a month or £2,700 after tax relief, would be enough to build a pension pot worth £205,000. This would produce £8,000 a year in income at the FTSE 100’s current dividend yield of 4.3%.
The bottom line
So, that’s how I would generate a retirement pot with the FTSE 100 and SIPP in just five years. If you’re willing to work a bit longer, it is possible to build a much larger nest egg with smaller contributions.
For example, £1,000 a month at 9% would be worth nearly £400,000 after 15 years, with the potential to produce an annual passive income of £17,200. It might take longer to hit this level, but the basic principles and tools are the same.
The FTSE 100 and a SIPP wrapper are the perfect instruments to help you build a sizeable pension pot with however much time you have available.
