Make a million for your retirement – get seriously rich by investing £250 a month

Martin Lewis compares savings to investing in stocks

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Better still, that million could be entirely free of tax, if you invest inside your annual Stocks and Shares Isa allowance. There’s a catch, naturally. The best way to build serious wealth for your retirement is to start young and stick with it.

Laith Khalaf, financial analyst at investment platform AJ Bell, said people in their 20s have the edge when it comes to building retirement wealth through stocks and shares.

That’s because time is on their side. “In the short term, stock markets are volatile, which puts some people off. However, young people who have plenty of time to recover from a short-term crash or correction, and can afford to take more risks.”

Shares can be more volatile in the short run but should deliver superior growth over the longer run, easily beating cash.

Say you invest £250 a month at age 25 in an Isa investment fund, and your money grows at an average rate of seven percent a year.

By age 67, you will have invested £120,000 in total. Your money will have grown to an incredible £640,829.

Now let’s say you increase your annual contribution by three percent a year, as your earnings slowly grow.

If you do that, you would have more than a million in your pension by age 67. Or rather, £1,098,106 to be precise, but who’s counting?

It is never too early to start investing. The first pound you put away will be the most rewarding, as it has so much longer to grow in value.

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The obvious problem is that most people cannot afford to invest £250 a month at age 25, and even if they did, most would have more exciting things to spend it on.

However, you may not need to put that much away to achieve the same effect. If you invest in a pension, for example, you can claim tax relief at either 20 percent, 40 percent or 45 percent, depending on your tax bracket.

Khalaf said that to make a gross pension contribution of £250, a 20 percent taxpayer only needs to pay £200, while a 40 percent taxpayer effectively pays just £150.

Remember that you may get a workplace pension as well, and that will accelerate your plans to build a decent pot of money before you retire.

Especially since under the auto-enrolment scheme, employers must pay in 3 percent of your salary, on top of your own 4 percent contribution. If offered one, don’t opt out.

If you don’t start seriously investing until age 35, then making a million in your pension will be a tall order.

Delaying by just 10 years will make a massive difference, as your money has less time to compound in value.

If you doubled up and invested £500 a month instead, you might just make it.

Assuming the same seven percent growth and three percent annual increase, you would end up with £985,500 by age 67. That’s a tidy sum but you will have to save harder to get it.

If you don’t start seriously investing until age 45, then you will have to throw money at the problem. You’d have to invest a whopping £1,250 a month – that £15,000 a year – to make a million by age 67.

Of course you don’t need a £1 million pension pot to fund a comfortable retirement, so don’t aim too high.

It’s always better to invest something, rather than nothing.

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