Forget the State Pension. I’d drip-feed £175.20 a month into a SIPP to retire rich!

I wouldn’t rely on the State Pension. I’d start saving now to transform my retirement into one that’s much richer, says Paul Summers.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

At just £175.20 a week, I know the new State Pension is unlikely to give many the lifestyle they crave in their golden years. 

But don’t despair! Today, I’ll show how investing this exact amount every month into a Self-Invested Personal Pension (SIPP) can be the pathway to wealth, even millionaire status! Let’s start by revising a few facts about the SIPP. 

SIPP it to retire rich!

Anyone serious about growing their wealth for retirement should consider opening a SIPP. Like the Stocks and Shares ISA, this is a tax-efficient savings vehicle. It won’t involve paying capital gains tax on any profits made from the investments. There isn’t even any income tax payable on any dividends received from the stocks owned. Over time, this really matters.

Should you invest £1,000 in Lloyds Banking Group right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Lloyds Banking Group made the list?

See the 6 stocks

There are a few other reasons for investing via a SIPP. Perhaps the most enticing of these is that any contributions made into the account qualifies for tax relief at a normal tax band. So, investors like me paying the basic rate (20%) will receive a 25% top-up from the government. In other words, £80 saved into an account becomes £100 after tax relief. 

Another positive is that I can save up to £40,000 in any one tax year. That’s double the ISA allowance!

£175.20 a month = retirement freedom

Back to the matter at hand. Let’s assume I’m saving the equivalent of the weekly State Pension (£175.20) into a SIPP every month. Thanks to the tax relief mentioned above, I would receive an extra £43.80 from the government, bringing the total monthly contributions to £219. Lovely!

Now, let’s assume I’m 40 years-old and I make these monthly instalments for the next 30 years. After all, there’s a possibility only those 70 and over might be able to access the State Pension by 2050

In 30 years, I will have saved a total of £78,840 according to my calculations. Let’s say this is invested this in the stock market and a penny wasn’t touched. I think I will be amazed by the results.

Wow! How much?

By 2050, that £78,840 will have grown to almost £175,000, assuming a 5% annualised return. As great as this sounds, the outcome could be even better if the chosen investments have performed well. 

A 10% annualised return would produce a little over £432,000 after 30 years. A 15% annualised return would make me a millionaire!

Of course, there are a few caveats. 

Keep costs low

Firstly, I must stress that there are no guarantees when it comes to returns. In reality, how much a person makes depends hugely on the age at which they begin investing and what they’re invested in. Small- and mid-cap companies tend to perform much better than big stocks over the long term, but they’re also far more volatile in the interim. 

Secondly, I’ve not taken account of any fees related to managing the SIPP, some of which will be unavoidable. Having said this, investors can keep costs low by not continually trading in and out of stocks. I’d just buy and hold.

In spite of these points, the numbers don’t lie. Look at how much money I could make by regularly saving into a tax-efficient account and trusting in the power of compounding!

I’d start investing the equivalent of the State Pension now and will be far less likely to be reliant on said State Pension in retirement.

Should you invest £1,000 in Lloyds Banking Group right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets.

And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Lloyds Banking Group made the list?

See the 6 stocks

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Pound coins for sale — 51 pence?

This seems ridiculous, but we almost never see shares looking this cheap. Yet this recent ‘Best Buy Now’ has a price/book ratio of 0.51. In plain English, this means that investors effectively get in on a business that holds £1 of assets for every 51p they invest!

Of course, this is the stock market where money is always at risk — these valuations can change and there are no guarantees. But some risks are a LOT more interesting than others, and at The Motley Fool we believe this company is amongst them.

What’s more, it currently boasts a stellar dividend yield of around 8.5%, and right now it’s possible for investors to jump aboard at near-historic lows. Want to get the name for yourself?

See the full investment case

More on Investing Articles

Investing Articles

£100k in savings? Here’s how that could be a starting point for £10k of monthly passive income

Millions of Britons invest for a passive income. Dr James Fox suggests a formula to try and turn a significant…

Read more »

Investing Articles

If a 40-year-old put £500 a month in an empty ISA, here’s what second income they might have at 65

Harvey Jones shows how investing regular monthly sums in FTSE 100 shares can build up to a substantial second income…

Read more »

Investing Articles

After plunging almost 10% in a week do these 2 UK shares now offer unmissable value?

Both of these UK shares have been punished by investors after disappointing updates. But has the reaction been too severe?

Read more »

Investing Articles

7.5% yield! Could this FTSE 100 stock potentially net investors a huge passive income?

REITs can be great for passive income, but there are important traps to avoid. Stephen Wright thinks considering a FTSE…

Read more »

Investing Articles

This former penny stock’s up over 1,000%! Can it 10x again?

This electronics supplier has skyrocketed out of penny stock territory, thanks to a new and growing partnership with Elon Musk’s…

Read more »

Investing Articles

Here’s 1 share I’m avoiding while searching for the top stocks to buy

Robotics and automation are highly lucrative, but this UK enterprise has a lot left to prove before I’ll consider adding…

Read more »

Investing Articles

My largest dividend stock investment is…

Zaven Boyrazian shares his biggest dividend stock position, and this is why he remains bullish on this little-known enterprise that…

Read more »

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

As the US stock market tumbles, here’s Warren Buffett’s advice

Warren Buffett's gone through multiple stock market crashes and corrections. Here’s his advice for navigating volatile markets.

Read more »