Latest news with #SIPP
Yahoo
2 days ago
- Business
- Yahoo
How much do you need in a SIPP to aim for a £3,000 monthly retirement income?
When it comes to investing for retirement, few investment vehicles come close to the power of a Self-Invested Personal Pension (SIPP). Not only does it eliminate the tax burden of capital gains and dividends, but the vehicle also provides tax relief that can supercharge the wealth-building process. So let's say someone's aiming for a £3,000 retirement income to combine with the British State Pension. How much do they need to invest? Let's explore. Breaking down the numbers Since this is a retirement portfolio, we're going to follow the classic 4% withdrawal rule. That means every year an investor draws down 4% of the value of their investments to live on. And if the goal is £3,000 a month, or £36,000 a year, then a pension pot will need to be worth roughly £900,000. It goes without saying that's a pretty large chunk of change. But thanks to the power of a SIPP, in reaching this goal just £750 each month could take slightly over 25 years – perfect timing for someone who's just turned 40. Let's say someone's paying the Basic income tax rate. That means they're eligible for 20% tax relief on all deposits made into a SIPP. Suddenly, a £750 monthly deposit is automatically topped up to £937.50, courtesy of the British government. And investing £937.50 at an 8% annualised return for just over 25 years translates into a pension portfolio worth £900,000. What if 25 years is too long? Sadly, not everyone has the luxury of a long time horizon. The good news is, stock picking offers a potential solution. Instead of relying on passive index funds, investors can opt to own individual businesses directly. There's no denying this strategy comes with increased risk and demands far more discipline. But it's also how investors can stumble upon big winners like 4imprint Group (LSE:FOUR). Over the last 15 years, the marketer of promotional merchandise has delivered a massive 1,685% total return, averaging 21.2% a year. And at this rate, the journey to £900k is cut to just 13.5 years. Still an opportunity? With its market-cap now just over £1bn, 4imprint's days of delivering 21% annual returns are likely behind it. But that doesn't mean it's not capable of surpassing the market average of 8%. The firm has established itself as a leader within the small business community, controlling an estimated 5% of the highly fragmented promotional market. And with a highly cash generative business model and practically debt-free balance sheet, the stock continues to garner a lot of favour with institutional investors. Five out of six of them currently rate the stock as a Buy or Outperform. However there are, of course, risks to consider. Ongoing economic pressures and supply chain disruptions make an unfavourable operating environment. And it's why the shares have actually fallen by 38% over the last 12 months. This volatility perfectly highlights the group's sensitivity to the economic landscape. And should unfavourable conditions persist longer than expected, order intake's likely to suffer, keeping the stock on its current downward trajectory. However, with a solid track record of navigating such market conditions, I think 4imprint might still be worth a closer look for long-term SIPP investors. The post How much do you need in a SIPP to aim for a £3,000 monthly retirement income? appeared first on The Motley Fool UK. More reading 5 Stocks For Trying To Build Wealth After 50 One Top Growth Stock from the Motley Fool Zaven Boyrazian has no position in any of the shares mentioned. The Motley Fool UK has recommended 4imprint Group Plc. 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 2025 Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Yahoo
3 days ago
- Business
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How much should a 40-year-old invest in an ISA to earn a monthly passive income of £1,000
One of my favourite ways to target future passive income is by investing in shares. More specifically, investors can make use of tax wrappers like a Stocks and Shares ISA, or SIPP, to achieve future income. Within these, it's possible to own a range of managed funds, exchanged-traded funds (ETFs), or individual shares. 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. Targeting £1,000 of monthly passive income If an investor wanted to target a £1,000 monthly income, that equates to £12,000 a year. A commonly used withdrawal rate of 4% means that this investor would need a pot worth £300,000. That might sound like a chunky sum to save, but when broken down over many years, it's far more manageable. For instance, I calculate that a 40-year-old would just need to invest £500 a month over 20 years to build such a pot. Some eagle-eyed readers might note that this just adds up to a total investment of £120,000. That's because I'd expect the remaining £180,000 to appear from investment gains over time. The assumption here is that it grows by 8% a year. And given long-term investment returns have been around 8%-10%, I think that's a reasonable assumption to make. Of course, by targeting greater returns (and accepting greater risk), an investor could reach their goal far quicker. One way that I aim to do that is by selecting individual shares and holding them for many years. Rewards from long-term investing One such FTSE 100 share that I've owned for several years is Games Workshop (LSE:GAW). Its share price has soared by over 1,200% since I first bought it back in 2017. If an investor had spent £500 a month on just this share since then, they'd be sitting on a pot worth over £210,000 already. That's a phenomenal achievement in just eight years. It would also likely result in a much earlier passive income than planned. But there are a few things to bear in mind. First, I would never suggest that anyone invest everything in one stock! Second, Games Workshop wasn't large enough to be in the FTSE 100 back in 2017. It was a much smaller business. Smaller companies can often grow much faster than giant, mature businesses. As UK small-cap investor Jim Slater famously quipped, 'elephants can't gallop'. It also traded at a much lower price to earnings ratio. Today, it hovers around 30, but back in 2017 it traded as low as 10 times earnings. It's not as cheap as it used to be. Still a great business Looking ahead, I still consider Games Workshop to be a high-quality business with ample potential. It operates in a niche market that is difficult to replicate. That gives it a competitive advantage. In turn, it earns a chunky double-digit profit margin and an incredible 70% return on capital employed. In recent years it has partnered with Amazon to bring some of its vast character universe to movies and TV shows. And this licencing revenue has much more room to grow in my opinion. A long-term investor could consider this and similar prospects. And although much can go wrong with individual shares, by selecting a diversified group of 10-20 names, it would spread the risk. The post How much should a 40-year-old invest in an ISA to earn a monthly passive income of £1,000 appeared first on The Motley Fool UK. More reading 5 Stocks For Trying To Build Wealth After 50 One Top Growth Stock from the Motley Fool The Motley Fool UK has recommended Games Workshop Group Plc. 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. Harshil Patel owns shares in Games Workshop. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors. Motley Fool UK 2025 Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Yahoo
3 days ago
- Business
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Up 68% but still yielding 7.1%, I've been loading up on Aberdeen shares
After hitting an all-time low back in April, Aberdeen (LSE: ABDN) shares have been on a tear. The mammoth dividend yield of 11.6% may have gone, but there aren't many large, well-known stocks out there that continue to offer market-beating returns. Improving numbers The asset manager is due to report H1 results next week. Should the positive momentum seen in Q1 continue, then we could be on the cusp of a major recovery in its share price. Last quarter, its direct-to-consumer offering, interactive investor (ii) continued its strong growth momentum. Total customer numbers were up to 450,000. This included 88,000 high-value SIPP accounts. ii has been very successful in tapping into a growing trend – the increasing importance of private investors to markets. With the spread of online investment forums, YouTube, and the like, individual investors have more power to move markets than at any time in history. Last quarter, during the tariff-induced selloff, ii saw record levels of engagement with an average of 24,000 trades per day on the platform. In the first half of April, it saw four of its highest trading days ever, as private investors swooped to buy stocks on the cheap. Fund outflows For all the success of ii, the reality is that a sustained recovery in Aberdeen's share price will only occur if it can get a grip on falling assets under management. Over the last few years, its Adviser business has simply haemorrhaged funds. The business is working hard to regain the trust of independent financial advisers, who recommend funds for their clients to buy. In Q1, Adviser saw outflows of £600m. This was its 'best' performance over the past six quarters. A couple of years back, outflows were in the billions. By 2026, it's aiming for greater than 70% of its total funds to beat a benchmark index. I certainly expect it to achieve that with its bond funds, which regularly hit over 90%. But I'm less confident that equity-only funds will achieve that milestone. It's not just Aberdeen equity funds that struggle to beat a benchmark; this is an industry-wide problem. Over the last few years, unless a fund manager was invested in the Magnificent 7 stocks, it had zero chance of beating the S&P 500, the most tracked index. Structural trends If it can get its Adviser business back to profitability, then the opportunity is massive. Despite recent blunders, like the ill-fated 'abrdn' fiasco, I still view the asset manager as one of the most respected in the industry. The UK wealth industry is growing. Over the next 25 years, over £5.5trn of wealth will be passed on by the baby boomers. In the more immediate future, over the next three years, the number of people retiring annually is estimated to be about 750,000. Now more than ever people are beginning to wake up to the fact that the State Pension will no longer fund the kind of retirement they want. With deep expertise in long-term financial planning, Aberdeen looks well placed to provide innovative retirement solutions. Over the last few months, I have been loading up on the stock at every available opportunity. I think my future self will thank me. The post Up 68% but still yielding 7.1%, I've been loading up on Aberdeen shares appeared first on The Motley Fool UK. More reading 5 Stocks For Trying To Build Wealth After 50 One Top Growth Stock from the Motley Fool Andrew Mackie owns shares in Aberdeen. 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 2025
Yahoo
21-07-2025
- Business
- Yahoo
Lifetime ISA vs personal pension: Which is better for higher retirement income?
If you don't qualify for an employer pension, or you're looking for a way to supplement yours, both a Lifetime ISA and a personal pension, such as a SIPP (a self-invested personal pension), can be effective retirement planning tools. They have a lot in common: they're both tax-efficient, they hold a similar range of investments - Lifetime ISAs are a little more restricted - and most compellingly, contributions to either are topped up by 25 per cent, albeit in different ways. At first glance, it may seem that you could pay the same amount into one or the other and they would deliver an equal income in retirement. This isn't the case. Let's look at which could provide a higher income for you, and why. Which allows you to save more? A Lifetime ISA allows you to pay in up to £4,000 each year from the age of 18 until you turn 50. If you paid in the maximum each year, the total would be £128,000. You must open one before age 40. Contributions count towards your overall ISA allowance. Pensions usually allow you to pay in a lot more, and you can pay in for longer. Various limits apply in different circumstances, but the standard annual allowance is £60,000. Which offers a better 'bonus'? When you make a contribution into a Lifetime ISA, the government adds a 25 per cent bonus. So, if you pay in £800, the government bonus will be £200. You can read more on LISAs here. Pension contributions don't benefit from a bonus, but they are eligible for tax relief, which has a similar effect. If you make a contribution of £800 into a personal pension, your pension provider claims and adds £200 from HMRC (the equivalent of basic-rate income tax). If you're a higher-rate or additional-rate taxpayer, you'll be entitled to more tax relief. This won't be claimed by your pension provider but you can claim it back through your self-assessment. (Getty Images) Which can be accessed first? You can freely access the wealth within your Lifetime ISA after the age of 60. Before that age, you can access it in two scenarios: You're buying your first home, at a value of no more than £450,000 You pay a 25 per cent withdrawal charge. Note that the 25 per cent withdrawal charge does not equal the bonus, but actually exceeds it: If you pay in £800, you'll receive a bonus of £200, giving you a total of £1,000 If you now withdraw £1,000, you'll pay a penalty of £250 (25 per cent of the total) You'll have £750 remaining, leaving you £50 worse off. Pensions usually cannot be accessed before the age of 55 (rising to 57 in April 2028) unless you have a serious health condition. It can be a more complex process. How is the income from each taxed? Here is, perhaps, a Lifetime ISA's most appealing characteristic: money withdrawn from them isn't considered income, so it won't be taxed. After the age of 60, you can take as much cash as you like, until it runs out, and you won't pay a penny of it to HMRC. Pension income can be taxed in various ways. A more full explainer is here but to simplify, you can usually take 25 per cent of your pension tax-free, while the other 75 per cent is taxed as income as and when you take it. You might therefore pay tax at 20, 40 or 45 per cent, depending on your other income. Which will provide a higher income? As you've probably gathered, this is a question of the trade-off between the tax relief (or bonuses) you'll receive while saving and the tax you'll pay (or not) when withdrawing. (Getty Images/iStockphoto) A personal pension is usually the better choice for higher-rate and additional-rate taxpayers. The tax relief on your pension contributions, at 40 or 45 per cent, more than offsets the tax you'll pay on your pension income, particularly if you move into a lower tax bracket after you retire. For a basic-rate taxpayer, the reverse is true. Let's look at an example: If you saved up £100,000 over your working life, whether you used a Lifetime ISA or personal pension, you would end up with £125,000 (we'll ignore investment growth to keep things simple). With a Lifetime ISA, you could withdraw this amount over any period, after the age of 60, without paying tax. You'd be able to take the full £125,000. With a personal pension, only 25 per cent (£31,250) would be tax-free. The remaining £93,750 would be taxed as it's withdrawn. If you withdrew it over several years, remaining a basic-rate taxpayer throughout, the total tax would be £18,750. Of your £125,000, you'd only get back £106,250. While this gives a clear advantage to the Lifetime ISA, there are other factors to consider: With an annual limit of £4,000 on contributions, a Lifetime Isa alone may not allow you to save enough as you need for retirement Since you can't access your Lifetime Isa penalty-free until 60, you may have to wait longer to retire You can only pay in until you turn 50, while you might want an option you can pay into after this. Given all the benefits and drawbacks, you may decide that both products have a role in your retirement plan - especially given there may be changes to the Lifetime ISA in to access your portfolio
Yahoo
20-07-2025
- Business
- Yahoo
See how much a 50-year-old should invest to get a £1k monthly passive income at 65
For many investors, generating a passive income is the number-one goal. Their dream is to create the financial freedom to grow in later life, and to devote more time to something other than working flat out. At 50, retirement feels a lot closer than it did at 40. There are fewer working years left to build wealth, and less time to recover from any nasty market shocks. But there's still a decent window of opportunity. Running the numbers To target £1,000 a month of passive income by age 65, based on a 6% average dividend yield across a portfolio of FTSE 100 dividend income stocks, would require a pot of around £200,000. Assuming 7% average annual growth, a 50-year-old would need to invest around £700 a month for the next 15 years to achieve that. In fact, they'd get £225,000 which is even better. It's a stretch for many at this stage of life. However, if they invest via a Self-Invested Personal Pension (SIPP) they can claim tax relief on contributions. This would cut that £700 to just £560 a month for a 20% taxpayer, or £420 for a 40% taxpayer. 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. I'd favour building a balanced portfolio of solid dividend income shares and holding on through thick and thin. One familiar name that income investors might consider buying is Rio Tinto (LSE: RIO). Dividends dig deep The global miner hasn't had an easy run. The share price is down more than 15% over 12 months, and 8% over five years. That reflects slowing demand from China, which is still struggling to reboot its economy, while the rest of the world flirts with recession. Despite that, the dividends have kept flowing. In 2024, Rio paid out $6.5bn to shareholders, maintaining a 60% payout ratio. The trailing yield now sits at just over 7%, one of the most generous on the FTSE 100. However, it's expected to fall to 5.85% this year. The stock looks cheap, trading at a price-to-earnings ratio of 8.88. On 19 February, it reported underlying 2024 earnings of $23.3bn and net cash flow from operations of $15.6bn. Profit after tax came in at $11.6bn. Shareholder rewards Rio's acquisition of lithium producer Arcadium should add diversification. Reports suggest incoming CEO Simon Trott could also explore major M&A opportunities, while sharpening productivity and cutting costs. There are risks. Global demand for metals may stay weak as global struggles continue. Miners face constant operational threats too. In May, Rio warned that iron ore shipments at its flagship Pilbara operation in Western Australia could come in at the lower end of forecasts, due to weather disruption. But a portfolio that includes stocks like Rio, mixed with defensive dividend payers and long-term growth plays, could potentially deliver that 6% average yield. Combined with compound growth, that's a realistic route to generating a £1,000 monthly passive income by age 65. With 15 years to go, there's not a second to lose. But with the right strategy and enough discipline, there's still time to build a serious second income. The post See how much a 50-year-old should invest to get a £1k monthly passive income at 65 appeared first on The Motley Fool UK. More reading 5 Stocks For Trying To Build Wealth After 50 One Top Growth Stock from the Motley Fool Harvey Jones 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 2025 Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
