Article by Phil
No, this is not one of those stories you see online promising the earth. This figure is based on the latest research from the Bowmore Group.
They looked at the compounding effects on savings and worked out that (using a 10% compounding formula) that an 18-year-old would build up a £1 million pension pot if they saved just £1.71 a day until their retirement at 68. Sounds unbelievable doesn’t it!
The rate of 10% is based on the performance of the markets over the last 100 years. 5% is a more usual rate to use in these calculations. At that rate you would need to increase your savings to £10 a day. So, you can see the impact of the compounding rate. The point of the research is to try to engage more young people into the value of saving for retirement. The later you start the more you have to pay. For example, if you start saving when you’d have to save an extra £1000 a year. If you left it until you were 38 to start saving it would cost you an extra £3,800 a year.
If you’re really lucky you could get someone to invest into your pension from birth, if you started off with a modest lump sum you might not even need to pay anything into a pension!
The earlier you start planning the better.
