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No savings at 50 and worried about the State Pension? This is what you need to do

Royston Wild
Retirement saving and pension planning

It’s no shock that so many of us are extremely worried about retiring in poverty. The State Pension is pathetic and it’s likely things will get even worse as government struggles to cope with an ageing population. It’s clear we all need to be alert so as not to fall into the trap of living close to the breadline in out later years.

Data last year from Royal London suggests the average person who wants to maintain their standard of living post-retirement needs to generate around £9,273 per year from a private pension. And this is assuming they’re eligible for the full £8,546 which the State Pension currently provides.

So how much will an individual need to have stashed away to achieve this level of income? Well, for holders of a single life annuity, Royal London calculates they would need a fatty pension pot of £260,000 by the time they come to retire.

Don’t panic!

That’s a challenging figure to reach for many of us, given the twin pressures of increasing living costs and poor wage growth. And particularly so for those who are hoping to retire shortly, but have little in the way of savings.

Royal London’s figures assume you’d be looking to hang up your work apron for good at 65. So what do you do if you find yourself at the age of 50 and have nothing in your savings pot?

Well, the first thing to remember is DON’T PANIC! I’m not going to soothe you with hollow platitudes. Such individuals will have a mighty hill to climb and some serious belt tightening will likely be needed. However, there’s still enough time to build the sort of pot to help you retire in comfort. And the best way to go about this is by investing in stocks and shares.

A good plan

Putting your money to work via equity markets is a tried-and-tested way of building cash for retirement. Over the long term, you can expect to generate a total return of around 10% per annum through stocks.

So how much does that 50-year-old with no savings pot need to put away to achieve that £260,000 pension pot based on that historical rate of return? According to my calculations, they’d need to put away around £650 per month to allow them to retire at 65.

This may seem an impossible task for many. But, on second thoughts, perhaps not. Those in their 50s and above have the advantage of not having to pay a range of everyday expenses like large mortgage payments and exorbitant childcare costs, giving them much more financial wriggle room to hit that £650 target.

Act now

Obviously, it’s critical to start preparing for your retirement as soon as possible. However, taking charge of your finances in a timely manner isn’t something which should be exclusive to those who are fast approaching planned retirement.

The longer you delay taking action, the more you’ll need to stash away each month. And, of course, the longer your money is invested, the better chance you have of riding out any market volatility, which can damage your returns.

It’s never too late to start investing and there’s plenty of help out there to assist you in meeting your retirement goals.

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Royston Wild has no position in any of the shares 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