Saturday, January 19, 2019

Do not qualify for the full state pension? I would do that


At just £ 164.35 a week, the state pension is not much money. Retirement worth £ 8,546.20 per year will most likely not be a retirement that includes exotic Mediterranean vacations or regular meals in chic restaurants. In fact, research by the Joseph Rowntree Foundation (JRF) charity has recently shown that the income a single retiree needs to lead a life minimum The acceptable standard of living (more than just housing and food) is around £ 10,000 a year - 17% higher than the state pension.


But even worse, millions of people in the UK are not even qualified for full state pension. For example, last year we had a reader who told us that he had recently found out that he was only paying about £ 120 a week - well below the full amount.


Lower payouts


There are a number of reasons why many people do not qualify for the full state pension. Some do not have enough "qualifying years" in their national insurance certificate (NI) and are therefore only entitled to a lower payout. Others were "negotiated" at some point in the past, which means that they paid lower NI contributions in exchange for a higher private pension and are now not receiving the full state pension.


What I do


Understanding that you are not entitled to the full state pension can be frustrating. However, it is important to understand that a lower government payout is not the end of the world. There are some strategies that could help to increase your retirement income, and with some planning, a lower payoff could be compensated with income from other areas. One such strategy that I think should be considered is the creation of dividends.


Passive income


Dividend investment is the process of investing in companies that regularly distribute part of their profits in cash (dividends) to shareholders. Essentially, companies pay for you as the owner of the business.


It is a popular strategy for retirees because it is really easy to generate a passive income. Simply invest in a selection of established companies that pay dividends, and regular cash payments are likely to reach your bank account in the shortest possible time.


Big cash payments


We're lucky here in the UK because there are many fantastic dividend stocks on the London Stock Exchange. For example, there is Royal Dutch Shellwhich has not lowered its dividend since the Second World War. It currently offers a return of around 6%. Or there is a tobacco giant Imperial brands, which has increased its dividend by 10% per annum for 10 years and currently achieves around 8.5%.


With these types of stocks, you could easily put together a small portfolio that will generate about 6% a year. With a total investment of around £ 25,000, you could expect a dividend income of around £ 1,500 a year, which can certainly help offset a lower state pension.


Finding out that you are not entitled to the full state pension can be daunting. However, there are definitely ways to increase your retirement income. Dividend investment is one such strategy worth considering.




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Edward Sheldon owns shares in Royal Dutch Shell and Imperial Brands. The Motley Fool UK has recommended Imperial Brands. The companies mentioned in this article are based on the author's views and may therefore differ from the official recommendations we make in our subscription services such as Stock Advisers, Hidden Winners and Pro. We at The Motley Fool believe that taking into account different insights makes us better investors.


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