How to retire a millionaire: Follow these simple steps to get more than a free bus pass at 65
The following sentence is 100% true: by saving now, you could be a millionaire by the time you retire. Don’t believe us? Here’s how…
Your biggest asset is the fact that you have age on your side. If you’re 25 now, you have at least 40 years before retirement. And time plus the annual growth your money makes (in interest, dividends, whatever) can balloon into figures you’d scarcely imagine.
Run of the mill
Financial advisers Hargreaves Lansdown researched how long it would take to become a millionaire, and found that simply by putting the maximum amount into an ISA every year, you would be worth a mill after 34 years, assuming an annual growth rate of 7%.
Lost? Try this. If you had £100 quid and put it in an account which paid 7% interest, by the end of year one it would be worth £107. At the end of year two, it’s worth £114.49 (the extra 49p is the interest on the seven quid interest you made last year, and it’s called ‘compound interest’). Says Martin Lewis at moneysavingexpert.com: “It makes your money grow more quickly than you’d think because you don’t just earn interest on the money you originally saved, you also earn interest on the interest. The longer you save for, the greater the effect.”
You are allowed to save £7,000 a year in an ISA – a sort of tax-friendly, government-approved savings account. If you’re 25 now and started this tomorrow, your £583 a month (that’s £7,000 a year) would be worth £1.45m in 40 years (assuming the old 7% thing).
Says Sean Gardner, Chief Executive of moneyexpert.com: “You could buy land near the site of the London Olympics, if there’s any left, and hold on to it for as long as you can. Then when planners get really desperate, sell it for a hefty profit. Alternatively, try and find that elusive stock that will make you a fortune. Google shares are now worth almost $700 each, but when it was a startup you could buy a chunk for next to nothing – which is why there are around 1,000 people who each have more than $5m-worth of Google shares from stock grants and stock options.”
Bank on it
Or you could stick it all in a bank and never worry about losing a penny of it. Your £583 a month in a ‘safe’ bank account paying 5% will still be worth around £860,000 in 2048. Just don’t choose the next Northern Rock, eh?