Building wealth for retirement using a Self-Invested Personal Pension (SIPP) is one of the most popular financial goals among UK investors. After all, SIPPs provide enough tax benefits, and everyone wants to make sure they’re financially secure in retirement. But how much money does this actually take?
Let’s crunch the numbers.
How big does a SIPP really need to be?
According to Pensions UK, a comfortable retirement requires a total pension income stream of £45,400 a year. The good news is that the State Pension currently provides £12,547.60 towards that figure. However, the remaining gap of £32,852.40 will need to come from your own retirement savings, like a SIPP portfolio.
So how big does that portfolio need to be? Well, following the 4% withdrawal rule, to generate £32,852.40 consistently year-after-year, a SIPP would need to be worth around £821,310.
Needless to say, that’s a pretty hefty lump of capital. And it’s 5.6 times larger than the £145,900 most British pensioners have saved up by the time retirement comes knocking. But as daunting as this threshold might seem, it’s actually a perfectly realistic figure for an average investor to reach, even if they’re only starting now in their late 30s or early 40s.
By depositing £500 a month into a SIPP, the government tops this balance up to £625, thanks to tax relief. And investing this £625 each month at a 10% annualised rate in the stock market, this would eventually reach the £821k threshold within around 25 years when starting from scratch, just in time for retirement.
Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.
Which stocks could help get there?
When building long-term wealth, quality matters more than excitement. And that’s where Halma (LSE:HLMA) could be worthy mulling.
The safety and environmental technology group just delivered its 23rd consecutive year of record profit, with revenue climbing 14.9% to £2,582.3m and earnings per share up 25.6% to 98.57p.
CEO Marc Ronchetti called it “another successful year for Halma,” pointing to growth that was “broad-based across all three sectors, further strengthened by premium growth in our photonics business.”