If a 40 -year -old person invests £ 600 a month in a SIPP, this is what they could have for retirement

How much can anyone expect to have in their inverted personal pension (SIPP) for when they retire?

The answer to that question depends on three main variables.

First, what is the Timeline?

In this example, I suppose that a 67 -year -old retirement age, so for someone who is 40 today, that means a period of 27 years.

The second variable is the Inverted amount.

Here I suppose £ 600. Actually, they are all different and will make their own decisions about how much they can afford to set aside regularly in their sipp.

Small differences can be extended by time

The third variable is the compound annual growth rate achieved during the life of the SIPP.

What seems that small differences can have a great impact, thanks to the effect of composition in a long term.

For example, with an annual growth rate of 5%, the 40 -year -old player today contributes to £ 600 per month will have a retirement fund with 67 worth around £ 402,600.

However, with an annual growth rate of 8%, that fund will be almost £ 652,000. That is a big difference!

Choose a realistic strategy to invest

This 8% compound annual growth rate does not necessarily require a dividend yield of 8% (or any dividends at all, in fact).

It is a combination of dividends plus capital growth, except any loss of capital of the shares sold for less than they cost.

So, in the current market I think it is possible.

But not all who invest in a SIPP have a lot of experience, or anyone, and they may not want to spend large amounts of time by monitoring their investments during the next quarter of a century or so.

I think it helps to adopt a realistic approach: not be too greedy, stick to what you understand, diversify in a variety of actions and weigh the risks seriously.

In addition to that, it makes sense to choose a SIPP that is competitive in terms of the rates that it collects, as they perform general yields.

An action to consider for a SIPP

To illustrate that approach, an action that I think investors should consider is the insurer Aviva (LSE: OFF).

Its current 6.7% dividend yield would be a significant way to achieve an annual growth rate of 8%. The annual dividend per action has been growing strongly in recent years, after a cut in 2020.

The price of Aviva shares has increased by 8% during the past year and has more than duplicate more than five.

I think the business can continue working hard. Insurance is a market with a high and resilient demand and enviva has a dominant position in the general insurance sector of the United Kingdom.

That could be further strengthened with its opponent's acquisition Direct line. That should offer economies of scale, although I also see the risk that the mixed performance of the last years of Direct Line can continue, acting as an Aviva ballast.

Even so, with a proven business model, a solid market share and a juicy dividend, I see that it enlivens as an action that SIPP investors should consider.