Saving half a million pounds in a Self-Invested Personal Pension (SIPP) is a great sum for a pension. After all, the average 65-year-old in Britain earns just £145,900. But is this last amount enough for a comfortable retirement? Unfortunately no.
In 2025, the Lifetime Pensions and Savings Association estimates that pensioners will need around £43,900 a year. When following the 4% withdrawal rule, a portfolio worth £500,000 would only generate around £20,000 a year. Combining this with the state pension will help get close to the target, but not enough.
So how much SIPP do investors actually need? What is the best strategy to reach this achievement?
Number crunching
If the target is £43,900, and the full UK state pension provides £11,973 each year, the portfolio should generate £31,927 passively. By keeping withdrawals at 4%, this means the pension pot should be just over £798,000.
Suppose an investor has just turned 40 and saving for a comfortable retirement is his top priority. So much so that they will make sacrifices and set aside £1,000 every month to invest using a SIPP.
As a primary taxpayer, the government provides a 20% tax break, turning this £1,000 monthly deposit into £1,250 of investable capital. After making some smart investment decisions, the portfolio is built steadily over time, corresponding to an average annual total stock market return of 8%.
Twenty-five years have passed, and the investor has just turned 65 and is now ready to retire. So how much money do they have in their SIPP?
The answer: £1,188,783 – enough to generate £47,550 each year, before additional gains from the state pension.
Please note that tax treatment depends on each client's individual circumstances and may be subject to change in the future. The content in this article is provided for information purposes only. It is not intended to be, and does not constitute, any form of tax advice. Readers are responsible for conducting their own due diligence and obtaining professional advice before making any investment decisions.
Aim higher
Retiring with nearly £1.2 million in the bank is nothing to scoff at. But 25 years is a long time for inflation to erode purchasing power. If it averaged 2%, today's target of £43,900 would be the equivalent of £72,000 in 2050.
This is where investors may want to consider a dedicated portfolio rather than an index fund. Stock picking comes with more risks and responsibilities. But it also opens the door to potentially life-changing returns.
Perhaps the perfect example of this over the past 25 years is Domino's Pizza Collection (les ie: dom).
Including profits, the fast food chain has generated a total return of 7,963%, or 19.2% per annum since October 2000. By accumulating £1,250 each month at this rate for 25 years, the SIPP goes from being worth almost £1.2m to £9m. That's a passive income of £362,438 a year – enough for a luxurious, not to mention comfortable, retirement, even with inflation!
Still worth considering?
In 2025, Domino's is facing a series of problems. Economic headwinds are holding back demand while inflation is destroying profit margins. It doesn't help that competitors like it Greggs They are trying to encroach on the pizza market with their own offer.
However, with the upcoming launch of a customer loyalty program combined with an acquisitive expansion of operations in Ireland, the company appears well placed to support consistent revenue and profit growth once demand returns to normal.
There is still a question mark about when that might happen. But with strong financials and a low valuation, investors seeking to build long-term retirement wealth may still want to take a closer look.
