The Cost of Delay
I’ll start saving next month or maybe after Christmas or when I get back from holiday. It’s so easy to put off saving for the future but the impact of this can be pretty startling.
Here are some figures to get you thinking. Let’s say you start saving every month, you increase payments every year to take account of inflation (at say 2%) and you achieve an investment return of 4% per annum after charges:
In other words your retirement fund could be 25% lower if you start saving at 30 instead of 25 or as much as 55% lower if you start saving at 50 instead of 40. The less time you have to save the more painful it gets!
Let’s look at it another way. Assume you want to build up a retirement fund of £250,000 by the time you are 65. How much do you need to contribute initially using the same assumptions as above?:
As you can see you will need to contribute about twice as much if you delay your savings from 30 to 40.
Over longer periods of time compound growth is your best friend. Growth on growth on growth makes small amounts into big amounts. An investment return of 4% per annum will double your initial investment in about 18 years and will quadruple it in about 35 years.
Of course it’s not just retirement planning that this applies to. Saving for anything is easier if you start sooner rather than later. University costs for the grandchildren perhaps? It typically costs about £20,000 per annum at the moment to cover tuition fees, accommodation and living expenses. Escalate that forward 20 years and allow for three years’ worth of studying and you get to a frightening figure of about £90,000. How much would it cost to start funding for that figure now?
Initial Monthly Amount £ 209
Lump Sum £ 41,075
How much will it costs if you wait another 10 years?
Initial Monthly Amount £ 564
Lump Sum £ 60,800
So what are you waiting for? The earlier you start saving, the more you save. To discuss further or to arrange a face to face meeting please contact us.