The planned rise in the State Pension age to 68 over the next 20 years is likely to make it more difficult for many people to retire at 60.
Furthermore, the State Pension amounts to just £8,767 per annum at the present time. This means that the vast majority of people will require a retirement nest egg from which to generate a passive income to help them in older age.
Fortunately, it has never been easier to invest your excess capital in the FTSE 100. Since it has a strong track record of growth and appears to offer good value for money at the present time, now could be an opportune moment to buy FTSE 100 dividend shares for the long run.
While the past performance of any investment should not be relied upon when determining its future growth potential, the FTSE 100 has a very long track record of growth. In fact, it has risen seven-fold since its inception in 1984. And when its dividends are added to its capital growth, the index has posted annualised total returns of around 8% over the last 35 years.
Certainly, there have been periods of high volatility during that time. For example, the 1987 crash, the tech bubble and the global financial crisis caused severe declines in a range of large-cap shares. But for investors who have a long-term period available to them, the FTSE 100 is likely to outperform other mainstream assets such as cash and bonds. This could mean that it is an appealing destination for your capital, through which a generous retirement nest egg could be generated.
Future growth prospects
Since a wide range of FTSE 100 shares currently yield in excess of 5%, the index appears to offer good value for money. Certainly, there are risks facing the global economy’s growth outlook, such as a US/China trade war and the uncertain political future for Europe and especially the UK. However, the FTSE 100’s historical performance shows that it has always delivered growth over the long run. As such, buying stocks while they offer margins of safety could be a simple means of improving your long-term total returns.
Clearly, diversifying across a range of companies is crucial when seeking to build a portfolio that will eventually provide a passive income in older age. Since the capital required to buy and sell stocks, as well as the availability of tax-efficient accounts such as a Stocks and Shares ISA, is more accessible than ever, now could be the right time to start building a retirement nest egg through FTSE 100 dividend stocks.
Although there will inevitably be challenging periods ahead, with recessions and bear markets a given, buying FTSE 100 stocks could increase your chances of retiring at 60 – even though the State Pension is set to become even less appealing over the coming years.
Peter Stephens 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 2019
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