Building retirement wealth in a Self-Invested Personal Pension (SIPP) is a proven strategy to secure a more comfortable pensioner lifestyle. Even when starting later in life, say at the age of 50, it’s still possible to build a substantial nest egg. But what does that mean in terms of money?

Let’s explore just how much richer older investors can expect to realistically become before retirement with only £500 a month.

Setting expectations

On average, the UK stock market’s delivered a long-term total annualised return of around 8% a year when looking at large-caps. And for the investors willing to take on more risk and volatility, small-caps have outperformed slightly at around 11%.

Let’s say that a 50-year-old investor today intends to retire at the age of 67. Assuming these growth trends continue in the future (which they may not), investing £500 each month for 17 years would net a portfolio worth anywhere between £215,900 and £296,400.

However, this calculation forgets one crucial advantage of using a SIPP – tax relief. Assuming the same investor’s sitting in the Basic rate tax bracket, each £500 deposit is automatically topped up to £625, thanks to tax relief. And when factoring this into the calculation, a SIPP portfolio could actually grow to between £269,900 and £370,500.

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. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.

Aiming higher

Building up to £370,000 to retire on is certainly nothing to scoff at. But that’s all dependent on making smart investment decisions. After all, investing isn’t risk-free. And a badly built portfolio could very easily destroy wealth instead of creating it.

Investors need to look exclusively at top-notch businesses, with promising long-term potential, while also trading at a reasonable price. Sadly, this trio of requirements isn’t always easy to find, requiring a lot of patience and diligence. And it’s why stock picking can be such a challenging task. But when executed correctly, the rewards can be enormous.

Take Goodwin (LSE:GDWN) as an example. The engineering group’s now a prominent industry leader offering high-integrity solutions to the defence, mining, energy, aerospace, and even jewellery industries. But that wasn’t always the case. And management’s ability to diversify, maintain a strong order book, and deliver consistent growth is what enabled the stock to climb 1,750% in the last 20 years.

On an annualised basis, that’s the equivalent of 15.7% a year. And it’s enough to turn a £625 monthly investment into £630,000 over a period of 17 years. Obviously, not every British stock has been so fortunate. Nevertheless, it goes to show the game-changing benefits that prudent investing can deliver.

Still worth considering today?

There are still some encouraging traits that make it a business worth considering today. Its order book continues to reach record highs courtesy of new nuclear decommissioning and naval vessel contracts. In fact, these deals have enabled operating profits to surge by 45% in its latest interim results. And so, despite its larger size, management continues to find ways to deliver rapid revenue and earnings growth as a sector leader.

However, even the most promising enterprises have their weak spots. Most of the group’s revenue stems from large contracts, which can be difficult to replace quickly. As such, cash flows have been pretty lumpy over the years – a trend that’s unlikely to change. And at a price-to-earnings ratio of 30, that can open the door to volatility.