UK Markets closed

No savings at 50? Here’s how to retire with a million without winning the National Lottery

Edward Sheldon, CFA
Two hands holding champagne glasses toasting each other with Paris in the background

If you have no savings at 50, you have your work cut out if you want to retire with a seven-figure pension pot. That said, it’s certainly achievable (without winning the National Lottery). Ultimately, you still have the best part of two decades to save and invest for retirement. You’d be surprised at what can be achieved financially over that kind of timeframe.

With that in mind, here’s a look at how to build up a £1m portfolio, starting at 50.

Ramp up your monthly savings

The first thing to do, if your goal is a £1m retirement pot, is to focus on saving as much of your monthly income as possible. Cut down on unnecessary expenses to free up cash flow and aim to pay yourself first every month so that saving is your number one priority. Make no mistake, you will need to save a fair bit of money each month.

Dump the cash savings account

But don’t just save into a regular savings account or a Cash ISA. These kinds of accounts currently offer very low interest rates (less than 1.5% per year) which means they won’t boost your wealth much. Instead, I’d save into a Self-Invested Personal Pension (SIPP) account.

There are two mains reasons I favour this type of account over a savings account. Firstly, through a SIPP you can invest in higher-growth assets such as shares and funds. These kinds of assets are likely to get you to one million way faster than cash savings.

Secondly, every time you save into a SIPP, the government will top up your contribution. This is known as tax relief. Put in £1,000, and the government will top this to £1,250, assuming you’re a basic-rate taxpayer (higher rate taxpayers get an even better deal). This is a fantastic deal which shouldn’t be ignored – it could really turbocharge your savings.

Invest your money

Finally, the most important step is to invest your money so it grows at a high rate over time. Ideally, you want to be generating a return of at least 10% per year on your money.

In order to achieve that kind of return, I would put together a diversified portfolio that’s focused on high-quality growth companies. A global equity fund such as Fundsmith could be a good place to start. It invests in stocks such as Microsoft, PayPal, and Facebook and has returned around 135% over the last five years. 

Individual UK growth companies could also be a good option. Just look at the returns of companies such as IT group Softcat and identity specialist GB Group. Over the last five years, both have generated gains of 300%-plus.

Putting this all together, I calculate that if you saved £1,500 per month from the age of 50, picked up the tax relief from the government, and generated a return of 10% per year on your money, you’d hit one million by 68. 

The key, as always, is to get started as soon as possible.

More reading

Edward Sheldon owns shares in Softcat, GB Group and Microsoft, and has a position in FundsmithTeresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool's board of directors. The Motley Fool UK owns shares of and has recommended Facebook, Microsoft, and PayPal Holdings. The Motley Fool UK has recommended Softcat and recommends the following options: long January 2021 $85 calls on Microsoft and short January 2020 $97 calls on PayPal Holdings. 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