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Image source: Getty Images<\/p>\n
When it comes to building a retirement nest egg, few investing tools match the power of a Self-Invested Personal Pension (SIPP).<\/p>\n
When starting early, depositing as little as \u00a3100 a month can be all it takes to secure a much more luxurious retirement in the long run. But what about those starting later\u2026 much later?<\/p>\n
An estimated one-in-six of people in the UK aged 55 and above don\u2019t have any retirement savings beyond the State Pension. That\u2019s despite it being nowhere near enough to live a comfortable retirement.<\/p>\n
The good news is, even for a 60-year-old aiming to retire at 68, investing a good chunk of change in a SIPP each month can have a significant positive impact on retirement lifestyle. Here\u2019s how.<\/p>\n
Tax benefits + compounding<\/p>\n
Unlike other tax-efficient investing vehicles like an ISA, any money put into a SIPP receives tax relief. In oversimplified terms, that effectively translates into deposits being topped up by the government, refunding any income tax previously paid.<\/p>\n
Sadly, when starting this late in life, some near-term sacrifices are going to have to be made. And if an individual can put aside up to \u00a31,500, that\u2019s when things get more interesting.<\/p>\n
Assuming a 60-year-old is paying the 20% basic tax rate, a \u00a31,500 monthly deposit translates into \u00a31,875 of investable capital each month. And if a portfolio matches the stock market\u2019s long-term average return of 8% a year, doing this for eight years will grow a roughly \u00a3251,000 pension pot.<\/p>\n
Following the 4% withdrawal rule, that\u2019s enough to earn an extra \u00a310,000 on top of the State Pension, providing a lot more financial flexibility.<\/p>\n
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.<\/p>\n
Aiming higher<\/p>\n
Following the upcoming hike to the UK State Pension in April, this extra \u00a310,000 would generate a total income of \u00a322,547.60 a year. But by using a stock-picking strategy, investors could end up with a lot more.<\/p>\n
Instead of trying to match the stock market\u2019s 8% annual average with index funds<\/a>, investors can aim to beat it by investing directly into the best businesses. And over the last eight years, that\u2019s something Premier Foods\u2018 (LSE:PFD<\/a>) shareholders have experienced first-hand.<\/p>\n