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No savings at 50? Here’s what I’d do to retire in comfort

Rupert Hargreaves
Family relationship with bond and care

If you’ve reached 50 years of age and have no savings put aside for retirement, then now is the time to start saving for the future.

The good news is, while it may seem as if you’re running out of time to put money aside, 15 to 20 years could be all you need to build a substantial savings pot and retire in comfort. And today, I’m going to explain how you can do that.

Start saving

The first thing every saver needs to do when planning for retirement is to work out how much money they’ll need to live off after quitting the rat race.

Estimates vary, but studies show that most retirees need between £15,000 and £20,000 a year to live comfortably. This is including any State Pension income. 

These numbers imply that most retirees need an additional income of approximately £11,000 a year at the high end, after excluding any State Pension income.

According to my calculations, this target figure suggests a retiree will need a pension pot of £275,000 at the time of retirement.

So how do you accumulate such a pension pot? The answer will depend on when you are planning to retire. Here, I’m going to assume a retirement age of 68, based on the fact that the UK State Pension age currently looks set to hit this level between 2037 and 2039. This target gives someone with no savings at 50 up to 18 years to save for retirement. 

Start investing

I believe the best method to use to grow your money as fast as possible when you’re saving for the future is to invest it. The stock market offers a much higher return than any cash savings accounts today.

For example, over the past 10 years, the FTSE 100 has produced an average annual return for investors in the region of 7%. The Bank of England base rate over the same time frame has remained below 1%.

If you’re willing to take on a bit more risk, the FTSE 250 has produced an average annual return in the region of 9% over the past decade.

However, because this index tends to be more volatile, if you’re planning to start withdrawing your money in the next 20 years, it might not be the best solution. That’s why I’m going to recommend the FTSE 100 for this purpose.

Assuming an average annual rate of return of 7%, I calculate it would take just nine years to accumulate a pension pot worth £300,000, with contributions of £2,000 a month. That’s excluding any tax benefits available with private pension contributions.

If £2,000 a month is outside of your budget, I estimate contributions of £1,000 a month would be enough to accumulate a savings pot worth £285,000 over the space of 14 years.

The minimum contribution I calculate is required to build a pension pot worth at least £275,000 over 18 years is around £650 a month, excluding any tax benefits, charges or other costs associated with investing that are incurred over the years. 

The bottom line

So that’s the strategy I’d use to retire in comfort if I had no savings at 50. Building a savings pot of more than £275,000 might seem like a daunting prospect at first, but with a disciplined savings plan and the FTSE 100, meeting this target isn’t as hard as it may first appear.

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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