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No retirement savings at 40? Here’s how I’d double my State Pension

Rupert Hargreaves
Retirement saving and pension planning

We are constantly bombarded with messages explaining why it’s essential to save for the future as soon as possible, but life isn’t perfect. Sometimes life gets in the way and makes it hard to save for the future. 

The good news is if you’re 40 without any pension savings, it’s not the end of the world. It’s still possible to build a comfortable retirement pot. All it requires is a bit of discipline.

Crunching numbers

The first stage of any savings plan is to establish how much money is needed to be saved to accomplish the goal you have in mind. In this case, I’m going to assume a comfortable level of pension is £9,000 per annum. Combined with the State Pension, this will give an income of roughly £17,800 per annum. The actual State Pension you’ll receive will depend on your National Insurance contribution record. 

According to a recent survey conducted by consumer magazine Which? £17,000 is the level of income most retirees believe they will need to cover necessary expenses without having to be overly concerned about money.

My calculations show that for an income of £9,000 per annum, a saver will need a pension pot of £225,000 by the time they come to retire. So, assuming a retirement age of 67, this gives 27 years to save for retirement from age 40. 

Meeting the target

According to my figures, it will take a monthly deposit of £700 over 27 years to save £225,000, assuming an interest rate of 0%. 

However, it becomes much easier to reach this savings target with investing. Over the past decade, the FTSE 100 has produced an average annual return for investors of around 7% per annum. At this rate of return, I calculate a saver would only need to put away £235 a month for 25 years to build a pension pot worth £225,000. Meeting this target becomes even easier if you use a SIPP. 

SIPP contributions attract tax at your marginal rate, which starts at 20%. With this relief, for every £80 you deposit, the government will add £20 to make it up to £100. This means a saver targeting the £235 contribution mentioned above will only need to put away £188. The government will make up the difference. 

The bottom line

The figures above show just how easy it is to save for retirement from age 40 if you invest your money and make the most of the tax benefits available. 

Unfortunately, it becomes much harder if you’re not willing to invest. That’s why it’s highly recommended all pension savers invest at least a portion of their money in the stock market for the best returns over the long term.

Not only does the stock market offer better returns than cash, but it also provides international diversification. It’s just impossible to do this if you keep your money under the mattress or in a zero-interest bank account. 

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Rupert Hargreaves owns no share 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.

Motley Fool UK 2019