With the State Pension age continuing to rise, building a retirement savings portfolio is likely to become increasingly important for many people.
Assets such as buy-to-let property, cash, bonds and gold may seem appealing after the recent stock market crash. However, investing money in UK shares while they’re trading at cheap prices could be a better idea.
Through building a diverse portfolio of stocks, you could enjoy a robust passive income in older age that offers financial freedom.
State Pension challenges
As well as a rising State Pension age, the amount paid to retirees is relatively disappointing. At present, it amounts to around £9,110 per year. That’s around a third of the average salary in the UK. As such, it’s unlikely to provide most people with enough money to pay all necessary bills and expenditures each month.
Furthermore, there’s a real threat the rate at which pension payments rise could be reduced in the coming years. The cost of coronavirus may lead to spending cuts and/or tax rises. This may mean that having a passive income in retirement becomes even more important. Therefore, starting to build a nest egg as early as possible may be a sound move.
Clearly, there are a wide range of assets that can be purchased to overcome a disappointing State Pension. However, UK shares could prove to be a more attractive option than other popular assets. Following the stock market crash, many high-quality companies trade at low prices.
They could deliver sound recoveries that have a positive impact on your portfolio’s growth rate. And, with the stock market having always recovered from its declines to post new highs, a turnaround in indexes such as the FTSE 100 seems likely.
By contrast, low interest rates mean the return prospects of cash and bonds are low. They may not be able to improve your prospects of overcoming the disappointing State Pension. Buy-to-let property is expensive to buy due to high house prices. Meanwhile, gold’s recent surge means that factors such as low interest rates and an uncertain near-term economic outlook may already be accounted for in its price.
Building a retirement portfolio
Of course, UK shares face an uncertain future. As such, buying a diverse range of companies within your portfolio could provide a more robust outlook that increases your chances of obtaining a passive income to supplement the State Pension.
Furthermore, buying high-quality companies with solid market positions and strong balance sheets may further reduce your risks. They may be better able to deliver profit growth as the economy recovers. They may also be able to capitalise on new opportunities.
In doing so, they could outperform the wider stock market. And that will help you to build a retirement savings portfolio that provides a generous passive income in older age.
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.