Starting Early is Key
One of the most used features of the Mail Online is the millionaire calculator. You put in how much you’re investing towards your retirement, and it tells you how long it will take for your investment to reach the magic million. It is not 100% accurate as it doesn’t account for tax, but it does demonstrate the power of compound interest. We have put together three scenarios that will show you how long it will take your savings reach a million.
As you will see the key to substantial savings is to start as early as you can, using the best investment vehicles possible. In each of the following cases, we have used the current high street interest rate of 2%, 4%, which is a fair estimate of stock market dividend yield, and risky long term investment of 8%.
Saving for retirement when you are 21 investing £150 per month
Monthly payment: £150 p/m
Interest: 2%
How long to become a millionaire? 125 years (age 146)
Monthly payment: £150 p/m
Interest: 4%
How long to become a millionaire? 79 years
Monthly payment: £150 p/m
Interest: 8%
How long to become a millionaire? 69 years
As you can see it is only the risky third option which will see your investment make you a millionaire before retirement. At 21 however, you have probably just landed your first job or you’re at university, and you are saddled with debt. Nonetheless, contributing savings now pays massive dividends in the future.
Saving for retirement when you are 21 investing £250 per month
Monthly payment: £250 p/m
Interest: 2%
How long to become a millionaire? 102 years
Monthly payment: £250 p/m
Interest: 4%
How long to become a millionaire? 67 years
Monthly payment: £250 p/m
Interest: 8%
How long to become a millionaire? 42 years (You would be 63 at this point, so you would be a millionaire before retirement.)
Again it is only the third option where you would be a millionaire, saving the high figure of £250 per month. Given you probably want to live more for today, and are probably not earning enough to save this amount, it can seem very distant. Nonetheless, the earlier you start investing the better your future will be.
Saving for retirement when you are 30 investing £200 per month
Monthly payment: £200 p/m
Interest: 2%
How long to become a millionaire? 112 years
Monthly payment: £200 p/m
Interest: 4%
How long to become a millionaire? 72 years
Monthly payment: £200 p/m
Interest: 8%
How long to become a millionaire? 44 years
Under this scenario you will never be a millionaire. The latter, more risky option taking you beyond retirement age to reach a million. Despite not benefiting from the compound interest your 21 year old counterpart is getting, you can still benefit from investments and retirement funds.
Saving for retirement when you are 30 investing £400 per month
Monthly payment: £400 p/m
Interest: 2%
How long to become a millionaire? 82 years
Monthly payment: £400 p/m
Interest: 4%
How long to become a millionaire? 56 years
Monthly payment: £400 p/m
Interest: 8%
How long to become a millionaire? 36 years
Hurrah, the third option will see you become a millionaire with a few years to spare. The question is, do you know what to invest in to ensure this high return?
Saving for retirement when you are 40 investing £250 per month
Monthly payment: £250 p/m
Interest: 2%
How long to become a millionaire? 102 years
Monthly payment: £250 p/m
Interest: 4%
How long to become a millionaire? 67 years
Monthly payment: £250 p/m
Interest: 8%
How long to become a millionaire? 42 years
Sadly, unless retirement age has risen to 82 by the time you get there, you will not see your savings take you to the magic million figure. Nonetheless, the compound interest will still give your investments a boost.
Saving for retirement when you are 40 investing £500 per month
Monthly payment: £500 p/m
Interest: 2%
How long to become a millionaire? 73 years
Monthly payment: £500 p/m
Interest: 4%
How long to become a millionaire? 51 years
Monthly payment: £500 p/m
Interest: 8%
How long to become a millionaire? 33 years
If somehow you are still working at 73, then wow-wee you will be a millionaire, well done. Again, if you can spare £500 a month to invest in your future, you can see good dividends providing you can invest it properly.
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Source: Mail Online
For more information, please contact Michele Carby at Holborn Asset Management on +971 50 618 6463 and on e-mail at [email protected]
