How Much Should You Invest to Retire a Millionaire?

Planning for retirement is a challenge for most of us, but it doesn't have to be! Cue: investing. With your 20 year holiday funds (aka your retirement funds) becoming less generous and the cost of living continually rising, building a retirement pot of £1 million might seem like an unattainable goal but we promise it’s not. The earlier you start, the easier it is to reach that milestone. 

In this blog, we’re going to break down the numbers to show how the percentage of your salary needed for investing grows depending on your age when you start. Or in other words - the sooner you start the better! 

The Curve: Age and Investment Percentage

Based on the average salaries at different ages, here's the percentage of income you'd need to invest to hit £1 million by the time you retire at 65.

• 20 years old earning £35,000: 3% of salary

• 30 years old earning £47,000: 7% of salary

• 40 years old earning £51,000: 18% of salary

• 50 years old earning £46,000: 65% of salary

The reality is, the later you begin investing, the steeper the curve becomes. For a 40-year-old earning £51,000 annually, setting aside 18% of their income is already challenging. 

Why Starting Early Matters

For a 22-year-old just starting their career on a £35,000 salary, reaching £1 million is much more feasible with consistent planning. By contributing 3% of their income each month, they can comfortably build their retirement pot over time. This highlights the antidote to the steep retirement savings curve: prioritising retirement planning at a younger age.

The key to early success lies in the power of compound interest. By starting earlier, your investments have more time to grow, and each contribution works harder to generate returns. For example:

• Starting at 20: With only 3% of your salary invested, your money compounds over 47 years.

• Starting at 40: You have only 27 years to reach your goal, requiring significantly higher contributions to make up for lost time.

The Role of Salary Growth

It’s important to note that average salaries grow over a lifetime. According to The Times Money Mentor, the average salaries for individuals in their 20s, 30s, 40s, and 50s reflect different earning potentials. While your earnings may increase with age, so do your expenses, making higher investment percentages even more challenging.

Practical Tips to Stay Ahead of the Curve

1. Start Early: If you're in your 20s, begin investing even a small portion of your income now. The earlier you start, the less you'll need to contribute later.

2. Take Advantage of Employer Contributions: Many workplaces offer pension contributions that match or supplement your own. Make sure you're maximising these benefits.

3. Automate Your Savings: Set up direct deposits to your pension or investment account to ensure consistent contributions.

4. Adjust as You Grow: As your salary increases, aim to increase the percentage of your income that you invest.

5. Seek Professional Advice: A financial adviser can help you create a personalised investment plan tailored to your goals.

The curve of retirement savings shows a clear trend: the earlier you start, the easier it is to save for a comfortable retirement. Waiting until your 40s or 50s to prioritise your pension may require significant sacrifices, while starting in your 20s allows you to benefit from smaller, consistent contributions. 

Whether you're 22 or 42, the best time to start planning for retirement is now. By joining our Investing Club, you will receive FREE access to our Universal Money & Investing course. And, trust us, it’s a total game changer.

Want to join the Club? Follow this link to learn more!

Credits 

The Time’s Money Mentor

The Telegraph