Image source: Getty Images
Building a Self-Invested Personal Pension (SIPP) worth £1m sounds like a dream, but it’s not beyond reach for patient investors who start early. A SIPP lets money grow free of tax, and with time and regular contributions, it can build into a life-changing sum.
Let’s imagine a 35-year-old has just transferred £25,000 from legacy pensions or other savings into a new SIPP. They aim to stop working at 67, which gives them 32 years for their investments to compound. If their initial £25k grew at 8% a year, roughly the long-term average total return from the FTSE 100, and with all dividends reinvested, the money would rise to £293,427 by retirement without a single extra contribution.
That shows the power of compound growth. But while nearly £300,000 is a tidy sum, it won’t be enough to fund a comfortable retirement three decades from now. Someone starting with £25,000 at 35 has a solid beginning, but they’ll need to pick up the pace to reach their £1m goal.
FTSE 100 stocks build wealth
To hit that seven-figure milestone, our investor would need to contribute £450 a month. That might look daunting for someone juggling the financial responsibilities of midlife, but pension tax relief helps soften the blow. That £450 will only cost a 40% taxpayer £270, which shows why SIPPs are such an efficient long-term vehicle.
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 also suggest increasing contributions gradually over the years to accelerate growth. Personally, I prefer to buy individual shares rather than simply tracking the index, as that gives me a shot at delivering a superior performance. There are risks, but I reduce those by investing in a well-diversified mix of around 15-20 blue-chip stocks.
NatWest shares are flying
One stock worth researching is NatWest Group (LSE: NWG). Its shares have rocketed 60% over the last 12 months and 360% over five years, with dividends on top.
Despite this rally, it still trades at a modest price-to-earnings ratio of 10.55. The yield’s dipped to 3.88% after the share price surge, but is set to climb. Last month, the board lifted the dividend by a thumping 58% to 9.5p per share. The shares are expected to yield 5.34% this year, rising to 5.96% in 2026.
Interim results delivered on 25 July were slightly better than expected, with operating pre-tax profit for the six months to 30 June up 18% to £3.6bn. The board also announced a new £750m share buyback.
While NatWest has had a brilliant run, nobody should expect it to maintain that blistering pace. Its growth targets now look ambitious, and with the UK economy slowing there’s always the risk of rising bad debts. Yet I still think NatWest’s well worth considering for long-term, diversified income and growth portfolio.
The long game
Building a £1m retirement pot takes time, discipline and a willingness to stick with the plan through good markets and bad. The earlier investors start, the easier the journey becomes. With regular saving, smart stock selection and plenty of patience, the end result could transform life in later years.
And you know what? It can also be fun.
