The easy way to save £1 million -- when you have nothing saved by age 50

Saving for retirement can seem like a daunting process, which is why so many of us put it off until the very last minute, and some don't do it at all.

Last year it was reported that around one in seven retirees was quitting the workforce with no workplace or personal retirement pot making them entirely reliant on the state handout. Currently around £8,500 per annum, the total value of the state pension is well below the average wage and around half of the £15,000 that surveys have suggested is the minimum level of income required to be comfortable in retirement.

The good news is that even if you have no money set aside at all by the time you turn 50, you can actually still end up retiring a millionaire.

On the road to a million

To make a million for retirement if you start saving at 50, you just need to commit to working longer, maxing out your retirement plan, and investing your savings wisely.

While it is easier to make a million if you start saving early, as you have the power of time on your hands, the average weekly wage for workers in their 50s is around £1,000 a month higher than 20-year old workers, which should mean you have more cash available to put away.

The first step on your savings journey should be to open a SIPP. The advantage of this product is the tax benefits it offers, which will accelerate your journey to £1m. Any personal contributions you make, up to the amount you earn, are given basic rate tax relief at 20% meaning that you can add a maximum of £32,000 a year with a government top-up of £8,000. To hit this target, you'll have to put away £2,666 a month.

Investing for the best returns

A SIPP isn't the only method of saving, but it is the most tax efficient. As well as the government top-up, you pay no capital gains tax or income tax on dividends from investments held within the wrapper. To be able to hit the £1m mark, you will have to invest this cash to achieve the best returns. Luckily, investing has never been easier. A simple investment in an FTSE 250 tracker fund has produced a return of around 9.5% per annum for the past decade, enough to turn your £32,000 per year contribution into £666,000.

To hit the landmark £1m, you're going to have to save a bit longer than 10 years. Although, if you're putting away £2,666 a month you should be able to quit the rat race at 63 (if you start at age 50), three years before the state retirement age (66 by 2020).

If you can't afford £2,666 a month, it's still possible to make a million by saving just £1,000 a month, although you'll have to delay retirement by a few years. Saving £1,000 a month works out at £15,000 a year including the government bonus. At 9.5% per annum, it will take 22 years for you to save £1.1m giving you a healthy retirement pot at age 72.

Ready to start saving?

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Rupert Hargreaves owns no share mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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