Not having to worry about money when you reach retirement may seem like a pipe dream for many, but you don\u2019t have to be rich to retire as a pension millionaire. <\/p>\n
In October Generation Z were warned they would need at least \u00a33 million in their pension<\/a> to maintain a \u201ccomfortable\u201d standard of retirement \u2014 equivalent to a 25-year-old saving at least \u00a31,000 a month. The stark figures came from the wealth manager Rathbones, which looked at financial projections from the industry body Pensions UK and applied the effects of inflation over the next 60 years.<\/p>\n Yet the path to being a millionaire in retirement may not be as overwhelming as you think. Here\u2019s how you can end working life with a multimillion pound pension.<\/p>\n How to reach your goal whatever your age<\/p>\n The figures may seem daunting. A 25-year-old basic-rate taxpayer who was not paying into a workplace pension scheme would need to put \u00a3552 a month \u2014 \u00a36,624 a year \u2014 into a low-cost self-invested personal pension (Sipp) to build up a million-pound pot, according to the investment firm Vanguard. This is based on existing tax rules and assumes an average annual investment return of 5 per cent.<\/p>\n For many of Gen Z such a large contribution is unrealistic given the rising cost of living and housing. However, Vanguard found another way to hit the million mark that may not feel like such a burden. <\/p>\n It said a 25-year-old who saved \u00a387 a month \u2014 \u00a31,044 a year \u2014 into a Sipp and gradually increased the amount by 10 per cent a year would enjoy a million-pound pot after 40 years. It\u2019s not the \u00a33 million Rathbones said may be needed, but it is a start.<\/p>\n \u2022 Budget 2025 predictions: which taxes could Rachel Reeves raise?<\/a><\/p>\n For those older than 25 the path to being a millionaire looks different. A 37-year-old about 30 years away from retirement earning \u00a340,000 with pension savings of \u00a350,000 would need to be putting an extra \u00a3566 away each month, alongside the standard 8 per cent workplace pension contribution. <\/p>\n \u201cA million seems like a daunting number, but with the right strategies in place it may be more achievable than you think,\u201d Andrew Marker from Vanguard said. \u201cIf you combine regular, disciplined investing with time in the market and the tax relief from investing in a pension you could build up a sizeable pension pot by the time you retire.\u201d<\/p>\n Figures from AJ Bell show the rapid effect a change in contributions can have. The investment platform looked at the difference between contributing \u00a31,040, \u00a35,200 and \u00a37,800 over the course of 40 years. Assuming 4 per cent growth and an annual 2.5 per cent increase in contributions (in line with pay rises), contributing \u00a37,800 a year could mean that savers have more than \u00a31 million by the time they retire. <\/p>\n A chunk of these contributions can be made via your workplace pension, where your employer will match what you put in and you earn tax relief on top. <\/p>\n \u201cAlthough it may have been tempting to opt out of your workplace pension over the past few years to fund rising bills and everyday spending, that should be a last resort and something you try and reverse as soon as possible,\u201d Tom Selby from AJ Bell said. \u201cOpting out means you won\u2019t get your employer contribution, effectively meaning you\u2019re giving up on free money and voluntarily reducing your overall pay package.\u201d<\/p>\n The steps to becoming a millionaire<\/p>\n Starting early is the most powerful tool someone has on the path to becoming a pension millionaire, says Katharine Photiou from the pension firm L&G. \u201cEven small contributions in your twenties or thirties can make a huge difference by the time you reach retirement,\u201d she said.<\/p>\n L&G calculated that someone putting an extra \u00a330 a month into their pension from the age of 27 could have an extra \u00a3100,000 by the time they retire.<\/p>\n If you\u2019re halfway through your working life and worry you may not have enough, there are ways you can turbocharge your pension. You could consider directing future pay rises or bonuses straight into your pension, boosting your pot without feeling a hit on your take-home pay. Or you could increase your monthly contributions. <\/p>\n \u2022 What it takes to be well-off in Britain today<\/a><\/p>\n Under auto-enrolment the minimum contribution is 8 per cent \u2014 3 per cent from your employer and 5 per cent from you. Check whether your workplace will match your contributions if you increase them. <\/p>\n Photiou advises consolidating your pension pots. \u201cThe traditional \u2018job for life\u2019 no longer applies, so you might have several pension pots scattered around,\u201d she said. \u201cBringing them together can make your pension easier to manage, reduce fees and ensure more of your money stays invested to maximise your growth.\u201d<\/p>\n Figures from the pension company Standard Life found that millions of pots risk being forgotten or lost, with about 25 per cent of UK adults not knowing what firm their pension is with. Some 66 per cent have never tried to track down lost pots<\/a>, despite the average missing pension being worth almost \u00a310,000. The government\u2019s pension tracing service<\/a> may be able to help.<\/p>\n Do you need more than a million?<\/p>\n With inheritance tax due to be levied on pensions from April 2027, the previous lifetime allowance of \u00a31.073 million is a \u201cuseful benchmark\u201d to aim for, Nick Nesbitt from the consultancy Forvis Mazars said, because this secures the maximum 25 per cent tax-free lump sum of \u00a3268,275. Money you withdraw from your pot above this amount is taxed as income at your marginal rate. \u201cExceeding this figure could force people into paying higher-rate income tax on pension withdrawals to prevent their estate from facing double \u2014 or triple \u2014 taxation on death,\u201d Nesbitt said.<\/p>\n Someone who retires with a pension of \u00a31.073 million can strategically draw down on their pot to make sure it lasts a long retirement. Someone retiring at 60 who draws down the maximum income each year up to the basic-rate tax limit (\u00a350,270) whose portfolio grows at a rate of 4 per cent a year could sustain this income until the age of 90 and have about \u00a3200,000 to pass on, according to Forvis Mazars. <\/p>\n","protected":false},"excerpt":{"rendered":"Not having to worry about money when you reach retirement may seem like a pipe dream for many,…\n","protected":false},"author":2,"featured_media":269316,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[14],"tags":[84,4176,4174,4175,56,54,55],"class_list":{"0":"post-269315","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-personal-finance","8":"tag-business","9":"tag-finance","10":"tag-personal-finance","11":"tag-personalfinance","12":"tag-uk","13":"tag-united-kingdom","14":"tag-unitedkingdom"},"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/posts\/269315","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/comments?post=269315"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/posts\/269315\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/media\/269316"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/media?parent=269315"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/categories?post=269315"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/tags?post=269315"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}