Just turned 40? Here’s how much you could have by retirement if you invest £500 a month via a SIPP

Worried about having enough money to retire on ? Investing regularly with a SIPP could potentially build a multi-million-pound nest egg!

Posted by

Zaven Boyrazian, CFA

Published 17 August, 7:21 am BST

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

The Self-Invested Personal Pension (SIPP) is one of the best retirement preparation tools available to British investors. While taxes do eventually re-enter the picture, the elimination of dividend and capital gains tax, along with income tax relief, drastically accelerates the wealth-building process. So much so that even when starting later at the age of 40, it enables investors to accumulate a substantial nest egg. Here’s how.

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.

Potential retirement wealth

Let’s assume an investor has just turned 40, is planning to retire at 65, and is currently in the Basic income tax bracket, paying a rate of 20%. Depositing £500 into a SIPP entitles them to 20% tax relief, transforming this monthly lump sum into £625. And investing this capital at the average stock market return of 8% a year for 25 years, compounds into a £594,392 pension portfolio.

Looking at the latest data from the Office for National Statistics, that’s just over four times what the average 65-year-old has saved up in 2025. And when following the 4% withdrawal rule, it’s enough to generate a retirement income of £23,775 a year.

Combining with the extra £11,973 from the UK State Pension, this simple investing strategy would put someone on the path to having a £35,748 passive income. And according to the Pensions and Lifetime Savings Association, that’s just over the £31,700 threshold needed to enjoy a moderate retirement in 2025.

Yet, when factoring in inflation, that threshold’s bound to rise over the next 25 years. Therefore, investors may need to aim a bit higher.