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Worried about the State Pension? I’d buy UK shares in an ISA to retire in comfort

Peter Stephens
·3-min read
Senior Man Sitting On Sofa At Home With Pet Labrador Dog
Senior Man Sitting On Sofa At Home With Pet Labrador Dog

Investing in UK shares after the stock market crash may not seem to be a sound means of building a retirement nest egg. However, indexes such as the FTSE 100 and FTSE 250 have long track records of growth that have seen them produce annualised total returns in the high-single digits.

As such, they could provide a sound means of countering a disappointing State Pension. It amounts to just £9,110 per year. Therefore, a supplementary passive income provided by an ISA portfolio of British shares could provide greater financial freedom for retirees.

Buying UK shares after a stock market crash

The recent stock market crash has highlighted the potential for volatile performance from UK shares. However, bear markets, corrections and downturns can occur at any time. Indeed, any company can produce a disappointing performance that causes a fall in its stock price. In other words, the stock market is full of unknowns that can lead to disappointing returns and paper losses for investors over the short run.

However, in the long run, indexes such as the FTSE 100 and FTSE 250 have excellent track records of growth. They have historically outperformed other mainstream assets such as cash and bonds. Meanwhile, building a diverse portfolio of stocks is more accessible than investing in buy-to-let property. Therefore, long-term investors may be able to build a portfolio of stocks that produces a surprisingly large nest egg by the time retirement comes along. From this, a generous passive income may be drawn through a diverse range of UK shares.

Building an ISA portfolio to supplement the State Pension

An ISA portfolio of UK shares can help retirees to enjoy greater financial comfort. After all, the State Pension is unlikely to provide a sufficient income for most people. It currently amounts to around a third of the average UK salary. So it’s likely to require a supplementary passive income.

A Stocks and Shares ISA offers a convenient and cost-effective means of accessing the growth potential of the FTSE 100 and FTSE 250. An ISA can be set up online in a matter of minutes. Meanwhile, the cost of administering it is extremely low, in many cases. Moreover, retirees can withdraw as much money as they like from an ISA at any time without penalty or tax payments. This makes them a flexible means to supplement the State Pension.

Clearly, buying UK shares means higher risks than other assets such as cash and bonds. However, the long-term growth prospects of a diverse ISA portfolio of stocks could make them relatively attractive on a risk/reward basis. As such, now could be the right time for an investor to consider purchasing FTSE 100 and FTSE 250 shares. Certainly while they trade at lower prices following the stock market crash.

The post Worried about the State Pension? I’d buy UK shares in an ISA to retire in comfort appeared first on The Motley Fool UK.

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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 2020