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Given the low levels of State Pension available, it’s important for me to invest for retirement. I want to build up a pot of money to use as a second income in my golden years.
And my situation is similar to many other people’s. I didn’t inherit wealth. So my financial future is in my own hands.
But that’s not a daunting prospect as long as I act. And I’ve been doing that since my early 20s by making regular monthly contributions towards my retirement pot.
To me, regular investments are one of two top ways to invest for retirement. And to begin with, I invested into the pension scheme run by my employer.
Now, there aren’t many no-brainers in life, but that is one of them. Pensions give us tax relief on the money going in. And that means the tax deducted from our earnings is paid back into the pension scheme on the money we contribute. But that’s not all. Most employers make additional contributions into the pension for their employees. So that’s two sources of free money that could help turbocharge my investment pot.
In later life, I’ve become self-employed. But I keep up regular payments into my Self-Invested Personal Pension (SIPP) because it also has the tax advantages of employer pensions. However, after a tax-free allowance, money coming out of a pension scheme is taxed as income in the normal way.
But I’m investing alongside that into a Stocks and Shares ISA. The ISA has tax advantages as well. Currently, there’s no tax relief for money going into an ISA, but when I take money out, there’s no income tax to pay. And that’s attractive to me because I hope to make gains on my stock investments over the years.
However, it’s worth me bearing in mind that the government has the power to alter the tax rules concerning SIPPS and ISAs at any time. Nevertheless, I see both vehicles as central to my financial planning for retirement.
A two-pronged stock strategy
And the second top way to invest for retirement is to choose my stocks and shares investments with care. It’s good that my holdings will be sheltered from taxes, but it’s important for me to pick the ‘right’ investments in the first place.
My solution has been to go for a two-pronged strategy. The first involves regular investments into a range of managed and tracker funds. And the aim of that part of my portfolio is to keep pace with the returns offered by the stock market as a whole.
But the second prong sees me shooting for higher returns by making well-researched investments into the shares of individual companies. And a big part of that approach targets companies paying growing dividend yields.
There are no guarantees that my investments will perform well in the future. But I’m optimistic that my regular and consistent investing routine will deliver an acceptable outcome in the end.
Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in the future. The content in this article is provided for information purposes only. It is not intended to be, nor 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.