A £150,000 SIPP could generate a retirement passive income of…
A Self-Invested Personal Pension (SIPP) is one of the best retirement wealth-building tools British investors have at their fingertips. Apart from being able to grow a portfolio without the handicap of capital gains or dividend taxes, investors also get the enormous compounding benefit of tax relief.
Needless to say, that’s a handy advantage to building a larger pension pot. But how much money do you actually need to retire comfortably in 2025?
Calculating retirement needs
On average, the Office for National Statistics has found that most 65-74-year-olds have close to £150,000 saved up as a nest egg. Following the 4% retirement withdrawal rule, that’s enough to generate a retirement income of £6,000 a year.
Sadly, even when combined with the UK State Pension of around £12,000 a year, that still falls firmly below the estimated £31,700 required to have a moderate lifestyle, let alone the £43,900 needed for a comfortable one. And that means a SIPP needs to be worth closer to £800,000 to generate the required income needed for a comfortable retirement.
Obviously, that’s not pocket change. And due to inflation, the amount of wealth required is likely to increase over time. Nevertheless, by allocating even a small sum each month using a SIPP, investors can still put themselves on the path towards financial prosperity.
Even with just £500 a month, 20% tax relief, and a 10% annualised return, a 40-year-old investor can accumulate £829,270 in their SIPP by the time they reach the age of 65. And thanks to the magic of compounding by waiting an extra two years, that same nest egg could grow to over £1m.
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.
Earning 10%+
On average, the UK stock market generates roughly 8% a year. But by successfully picking stocks, it’s possible to earn significantly more. This does come with more risk, but given the potentially life-changing rewards, it’s a strategy worth pursuing, in my mind.
So which stocks could generate market-beating returns today? There are never any guarantees, but one business I’ve already added to my SIPP is Games Workshop (LSE:GAW).
Even with economic uncertainty on the rise, the Warhammer plastic miniature manufacturer continues to defy expectations and deliver record-breaking results. New miniature releases and bespoke army boxes continue to fly off the shelves. And its latest release of pre-orders for its annual Christmas Battleforce boxes started selling out in less than 24 hours.
It’s a niche but high-margin business with a loyal customer base, allowing Games Workshop to command a staggering amount of pricing power. However, there are still some key risks to consider.
With all of its manufacturing done in the UK, the companyâs experiencing some pressure on margins due to US tariffs. There’s also a question mark over potential cultural change. After all, tabletop wargaming doesn’t appear to be as popular among younger generations, which could limit the group’s long-term growth.
Fortunately, the company’s 40%+ operating margins provide more than enough financial wiggle room to absorb tariffs. Meanwhile, managementâs also been diversifying the revenue stream using licensing to increase brand exposure through digital channels.
In my opinion, these largely untapped avenues grant far greater exposure to a much wider audience, potentially luring in new customers to support long-term growth. But it’s not the only promising UK stock I’ve put in my SIPP.
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Zaven Boyrazian has positions in Games Workshop Group Plc. 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. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
