How much should you invest?

While investing in the markets can never guarantee a return, it is possible to gauge what one could build assuming certain specifics. Laith Khalaf, head of investment analysis at AJ Bell, broke this down step by step.

He said: “In order to be a millionaire by the age of 65, a 40 year old would need to invest £1,450 a month, assuming annual returns of six percent after charges. Or to be a millionaire couple, each partner would need to invest £725.

“If you were lucky enough to get eight percent growth on your investments, that would fall to £1.080, or £540 each for a couple.

“It’s not easy to become a millionaire, but in order to give yourself the best chance you need to go hard and early, and invest in assets which will grow over time. That means investing in the stock market, because if you’re only saving in cash, with interest rates so low you’re going to be waiting a long time to hit your seven figure target.

“It’s also important to make the most of tax shelters like SIPPs and ISAs, so you lose as little as possible to the taxman.”

Mike Stimpson, a Partner at Saltus, also provided the following calculations: “It is possible to achieve a retirement pot of £1million if you save and invest around £2,000 a month for 25 years. For example, if you started from £0, and made an annual investment of £24,012 and your investments grew at four percent annualised, after 25 years you’d have a final investment pot of just over £1million (£1,000,001.55). You would have paid in just over £600,000 (£600,300.00) and earned interest of more than £400,000 (£399,701.55).

“However, a rule of thumb calculation of this nature, is considerably flawed. You should approach saving for retirement by determining your spending needs first and modelling the level of assets required to meet your expenditure needs when retirement arrives.

“How your assets are structured from a tax perspective will also have huge implications on the level of wealth you require. Your growth rate will fluctuate in reality and the level of risk you are willing to take will have a significant impact. Retiring comfortably is not about aiming for £1million. It’s about saving and investing in a manner that is congruent with your personal circumstances. If in doubt, take advice.”

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