A Self-Invested Personal Pension, or SIPP, is arguably one of the most powerful retirement-saving tools in a British investor\u2019s arsenal. Apart from letting wealth grow uninterrupted by dividend and capital gains taxes, contributions also receive juicy tax relief.<\/p>\n
In fact, someone paying the basic rate of income tax who puts \u00a3550 into a SIPP receives an extra \u00a3137.50 from the government. And as such, they now have \u00a3687.50 of capital to invest for their retirement.<\/p>\n
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So, let\u2019s say the goal is to build a SIPP large enough to generate \u00a350,000 passive income at retirement. How big does a SIPP need to be?<\/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
Crunching the numbers<\/p>\n
Following the 4% withdrawal rule, sustainably generating \u00a350,000 a year requires a pension portfolio worth around \u00a31.25m.<\/p>\n
The good news is, reaching seven figures could be far more achievable than it sounds, especially when starting early. Investing \u00a3550 each month, or \u00a3687.50 after tax relief, at the stock market\u2019s 8% average return would eventually grow into \u00a31.25m over the course of roughly 32 years.<\/p>\n
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