Pension: How you could become an asset ‘millionaire’ through your ISA or pension – act now

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Pension and ISA savings are both different approaches to financial planning, but could each provide favourable outcomes. When investing, which both methods are driven by, a long-term approach is key, and could help individuals build up significant sums. There is even a chance for Britons to become asset “millionaires” by the time they reach retirement.

Express.co.uk spoke to James Norton, Head of Financial Planners at Vanguard, who offered perspective into the matter.

Mr Norton highlighted the goal of many people to reach “millionaire” status with their pension or ISA and how this could be achieved.

He said: “Put simply, the goal of becoming a pension or an ISA millionaire is one which is achievable, as long as you think ahead.

“If you think about it, currently you can put £20,000 into an ISA, and up to £40,000 into a pension, so you could be saving £60,000 tax-free each year.

“If you do the calculations, it’s quite extraordinary, and it means in just under 17 years you could get there – and that is assuming no investment growth.

“Just putting in the maximum allowances each year could help you get there. But the fact is, there aren’t many of us who can afford to put in £60,000.

“However, the flip side is that we should get investment growth to help us out. If you’re putting money away in the long term, you should get good returns, and you can assume an annual growth rate of roughly five percent.”

While Mr Norton’s figure breakdown illustrates how the goal of becoming a pension or ISA millionaire is one which is potentially achievable, there are other factors to take into consideration.

Namely, the cost of investments when looking at a pension or non-cash ISA will be key.

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The issue, though, can often be overlooked, despite figures demonstrating its vital effect.

Mr Norton continued with an example, saying: “If you take £10,000 and invest it for 50 year with a seven percent return, you will have £300,000, which is an extraordinary sum – a thirty-fold increase in your money.

“50 years sounds like a very long time, but the earlier you start on this the better.

“But if you take off two percent of your costs, and lots of places will cost two percent if they’re expensive, you’ll only have £100,000.

“That’s almost an unbelievable difference, and that shows if you’re serious about becoming a pension or ISA millionaire you need to focus on what you can control.

“First and foremost, you can control your costs, and you can go to a low-cost provider – as cost is the biggest predictor of future returns.

“You can control the amount you invest, within reason, based on your income, for example, you could cut back on expenditure if you are serious about meeting this goal.

“But what you can’t control is what stock markets will return, and so you should be focusing on the matters you can change yourself.”

Once a person decides the arrangement which works for them in the best way possible, they can get on track with their finance goals.

Of course, the speed at which a goal can be achieved will differ for all, depending on numerous factors including when this journey is commenced, as well as how much a person can put into investments.

Ultimately, however, Mr Norton stressed the importance of realism when planning financially for the future.

Although the goal of becoming a pension or ISA millionaire may seem achievable if carried out in the long term, it may not be the best approach for all Britons.

As such, considering one’s options is an important step to take in this regard.

Mr Norton concluded: “While it is attractive to think of £1million and yourself as a ‘millionaire’, what I would say is that rather than focusing on that big number, try to think about what you will need.

“For some people, £1million may be achievable, but for others, it just isn’t a reality, and more to the point, they may not need it.

“Focus on a goal which is meaningful, relevant and achievable for you, and you’ll have a much better chance of succeeding.”

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