Investing just £20,000 in yourself can change your life in retirement by providing some much-needed extra cash to boost the state pension.
The state pension is a measly £9,000 a year and designed to cover a very basic lifestyle and certainly won’t stretch to buy some of life’s luxuries, like a nice holiday or new car.
If you want to carry on a semblance of the lifestyle you have while working, the government has made it clear that you need to start saving as soon as you can.
That £20,000 may seem a lot, especially if you are saving for a deposit on a home, but is not so bad when trickle saved over 15 or 20 years in to a pension that still has 20 years to grow.
Where to put the cash you save
It’s even better when you can get some help from the government which will top up every £80 saved to £100 with tax relief.
Starting to invest in your own future is an important step.
The money should go in to a flexible SIPP personal pension where you can manage your savings by picking investments that suit you.
The experts suggest FTSE trackers because investors don’t have to do any work, like picking stocks or diversifying to spread the risk of losing money. The tracker merely follows the performance of the FTSE and typically earns a return of between 9% and 12%.
How the figures add up
Past performance does not guarantee future profits, but the likelihood is as the markets have hit that sort of return for years that they will likely continue to do so.
That £20,000 invested in a FTSE250 tracker could generate a pot of £270,000 over 20 years – and that’s an annual income of £11,600 at current rates.
Add that up and you could receive an income of more than £20,000 retiring at 60 years old all from setting aside around £66 a month in your early 20s until your 40s.
If you can afford more, all the better, but that £66 a month means staying in a couple of times instead of going to the pub or out for a meal – a small sacrifice for your later years.