Preparing a suitable pension for retirement is harder than most people think, in my opinion. It takes a lot of financial planning, including finding suitable income shares. I also need to prepare for any mortgage payments I might still have.
Equally, I need to account for any unexpected crises that may occur in my old age. I might encounter health issues that could require further expenses not fully provided by the national health service. That’s particularly true if I want to be more comfortable.
The Pension and Lifetime Savings Association (PLSA) has estimated that a single person will need £31,300 for a moderate income in retirement, an increase of £8,000.
Let’s take a look at some of the strategies I’m employing now to make sure I’m set up well for my elder years.
To have a stable retirement while also maintaining my lifetime savings, I’d want to invest in passive income shares that are likely not to depreciate in price. To give an example of one company that I could choose, I’ve looked at Record (LSE:REC).
It’s a currency management firm, and it’s actually near the top of my watchlist at the moment, even independent of the passive income.
The company has a dividend yield of around 7% right now. However, over the past 10 years, it’s been more common for it to be about 5%.
The great thing about me investing in Record near retirement is that while it yields around 5% per year, its share price is also more than 60% over the last 10 years. Additionally, it’s currently trading around 30% below its high, with a price-to-earnings ratio of about 12.
Risks for Record
While I think the shares look promising for retirement, I think there are some company-specific risks for me to consider.
For example, its net margin at the moment, while still pretty good, is lower than normal for the firm. Currently around 22%, it would need to improve this to maintain growth in the share price as it’s common for it to be around 26% over the last 10 years.
Also, while the shares have grown in price over time, there is some volatility, with periods of price stagnation and decreases. Therefore, it’s vital I buy at a good valuation. I must remember that any loss in price is likely temporary as long as the financial reports remain appealing.
My retirement strategy
To yield the £31,300 estimated as a necessity by the PSLA for a moderate retirement, I’d need £626,000. I know that might seem a lot, but I don’t think it’s unattainable. I started investing as early in life as possible because time in the market grows my savings the most.
As an example, an average 10% annual return from the S&P 500 with £5,000 invested and £200 added per month over 32 years creates £678,072. That’s more than enough to hit my target. What’s more, to achieve that, I could start at 28 years old, and I’d be able to retire at 60.
Of course, I wouldn’t put all my money in Record shares. There are plenty of great companies with 5% yields in the US and the UK. Therefore, I’m confident my strategy is a winning one, as I can also diversify.
The post Pension needs estimate rises £8K. These income shares could support my retirement appeared first on The Motley Fool UK.
Oliver Rodzianko 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 2024