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If you want to get serious about building wealth, think about opening a Self-Invested Personal Pension (SIPP). Like the Stocks and Shares ISA, these products offer excellent tax protections that could help you build a large retirement income.<\/p>\n
Investors enjoy breaks on capital gains<\/a> and dividend taxes, giving them more financial firepower to grow their portfolios. And while SIPP users pay income tax on withdrawals (unlike ISA<\/a> holders), tax relief on contributions can more than offset this and supercharge long-term wealth creation.<\/p>\n Indeed, investors can build a big passive income in retirement with just \u00a35 a day. Want to know how?<\/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.<\/p>\n Growing a SIPP over time<\/p>\n On average, \u00a35 a day works out to \u00a3152 each month. That may not look like much to get a retirement fund going. But SIPP investors have two things in their favour to turn this into a large nest egg: healthy tax relief and the long-term power of the stock market.<\/p>\n Let\u2019s say we have someone earning over \u00a350,271 a year, putting them in the higher tax bracket. At this level, they enjoy 40% tax relief on any contributions they make \u2014 20% is automatically added to their pension pot when they make a deposit, and 20% is claimed back through their tax return or tax code adjustment.<\/p>\n At this rate, their monthly contribution is effectively bumped up by \u00a338, giving them \u00a3190 to invest straight away instead of \u00a3152. And with the additional higher-tax relief, they receive a \u00a3456 annual tax refund (\u00a338 x 12 months) they can use to accelerate the growth of their SIPP.<\/p>\n Past performance isn\u2019t a guarantee of future returns. But based on the historical average annual return of 9% from share investing, our SIPP user could grow their retirement fund to roughly \u00a3410,000 after 30 years.<\/p>\n What about passive income?<\/p>\n With 75% of any drawdowns from this subject to income tax, our investor would enjoy an annual passive income of \u00a313,940 after HMRC takes their share. That\u2019s assuming they drew down 4% of their SIPP each year, and had no other sources of income aside from the State Pension.<\/p>\n That works out at \u00a31,162 a month, and could go a long way to helping with the rising costs of retirement.<\/p>\n