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Age 50 and no savings? Here’s how to double your State Pension

Harvey Jones
Sheet of paper with retirement savings plan on it

If you’re 50 years old and haven’t started saving for retirement under your own steam, you will soon be staring the State Pension in the face, and it’s not a pretty sight.

How much!

The new state pension is worth £168.60 a week for a single person this tax year, which will give you total income of just £8,767.20 a year. Don’t despair, you can do better than that. Even if you have left it late, doing something is better than nothing.

Let’s say you’re age 50, and have zero long-term pension or ISA savings. That’s an extreme example, but it happens.

Now let’s say you want to double your State Pension. In other words, generate another £8,767 a year (we’ll overlook the 20p). To generate that from a single life annuity, you would need around £150,000 in your pension pot at age 65. That sounds daunting, but isn’t impossible.

Act now

The big question is: how do you save so much in such a short period – and from a standing start? First, let’s make an assumption. You invest in stocks and shares, because that is the best way to generate long-term wealth, and your portfolio grows at 6% a year after charges.

At age 50, you will need to invest just over £500 a month to achieve £150,000. If you had started five years earlier, at age 45, that figure would have been a more affordable £325 a month. Which shows that the sooner you get saving, the better. So don’t waste any more time.

Government help

Now these are large sums, and sadly beyond some people’s pockets. However, others will be able to afford it, perhaps with a bit of belt tightening elsewhere. If you’re in that position, you need to stop putting it off and start saving today.

If you save in a pension, the Government will help you hit that target by giving tax relief on your contributions. If you pay basic rate income tax you automatically get 20% tax relief, which means you only have to pay in £80 for each £100 that goes into your pension, so to contribute £500 you only need to pay in £400. If you are a 40% higher rate taxpayer, that £500 effectively costs you just £300.

If you opt for an ISA you cannot claim tax relief on your contributions but all your returns will be free of income tax and capital gains tax.

Cashing out

You will have to pay in a lot more than that every month if you choose to leave money in a cash savings account earning, say, 1% a year. At age 50, you would need to save a whopping £770 a month to hit that £150,000 target by age 65. Shares are the way to go if you can take the added risk.

Your next step is to decide where to invest. Edward Sheldon reckons these two investment trusts could have a lot to offer people in their 50s. Here are another two investment trusts worth considering for a starter pension portfolio.

If you invest regular monthly sums in a balanced portfolio of shares and low-cost funds you can afford to ignore short-term stock market volatility. You have left it late but there is still time. Just don’t leave it any longer.

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Motley Fool UK 2019