When we think about retirement, the numbers can feel overwhelming – £250,000, £500,000 or even £1,000,000 might seem impossible.
But here’s the good news.
You don’t need to be wealthy today to become wealthy over time.
With some forward planning, a regular habit and patience, anyone working today can take the steps to create that dream retirement.
Let me show you how.
Starting early – this is your superpower
One of the most powerful factors in building long-term wealth isn’t how clever your investment strategy is. It's time.
If you start investing at the age of 25 and simply stop after 15 years, your money keeps growing as long as it remains invested.
But what happens if you started investing at 35 for the next 30 years?
Or perhaps you did start at 25 but never stopped till 65?
The results will surprise you.
Starting age
The key takeaways?
If you started at 25 and invested to age 65, you turned every £1 you invested into £3.19.
If you delay starting until age 35 and invest to age 65, you turned each £1 invested into £2.32.
Even though you contribute more overall by starting at 35, missing those early years means you'll end up with a smaller pot than if you'd started at 25 and stopped at 40.
This article isn’t advice. If you're not sure if a course of action is right for you, ask for financial advice. Remember, all investments can rise and fall in value, so you could get back less than you invest.
So, what’s the moral of the story?
Start early and stay the course. It’s often cheaper to do so.
Make it a lifestyle, not a one-off.
Think of investing like going to the gym. The results come from consistency, not intensity.
For example, contributing just £163 a month from the age of 25 for 40 years, until you’re 65, with a 5% annual return (after charges) could give you around £250,000 by retirement, ignoring the effects of inflation.
And you don’t need to come up with that amount all by yourself.
Use the power of your pension to help grow your wealth
If you’re investing through a company pension, and are a basic-rate taxpayer, your employer and the government will top up the amount you pay.
You’d be surprised how it all adds up.
Let’s look at an example of the cost to you if you pay 5% of your salary into your pension, and your employer does too.
Keep in mind, you and your employer could actually pay different amounts:
Your salary: | £23,000 per year |
---|---|
Your contribution at 5%: | £76.67 |
The government adds tax relief: | £19.17 |
Your employer matches your contribution: | £95.83 |
Your total contribution every month: | £191.67 |
Under this example, if you started saving less than £77 per month at age 25, you could end up with a pension pot at age 65 worth almost £300,000. That’s assuming 5% annual growth, after charges.
If you pay tax at the higher or additional rates, the cost to you is even less, although you might need to claim some of your tax relief through self-assessment.
If you’re eligible for a bonus, you can usually contribute it into your pension too, subject to the usual pension allowances. That’s an extra pot of cash that could build you a great financial future.
Over time, these regular top-ups can make a big difference and that’s because pension contributions come with tax advantages which can go further when used this way.
Don’t let the big numbers intimidate you. You’re likely to only put in a fraction of what shows up in your pension retirement fund by yourself.
Most people overlook how powerful it is to redirect a part, if not all of their annual bonus into their pension. If you plan ahead and adjust your lifestyle, you might not even miss it.
If you don’t have one already, a budget planner can help.
Tax rates and bands are different for Scottish taxpayers. Remember, you can't usually access money in a pension until you're 55 (rising to 57 in 2028).
What could you build?
Now, let’s look at what regular monthly investing starting from age 25 until 65 could approximately achieve.
Monthly contribution | 3% growth | 5% growth | 8% growth |
---|---|---|---|
£163 | £150,000 | £250,000 | £570,000 |
£326 | £300,000 | £500,000 | £1,140,000 |
£652 | £600,000 | £1,000,000 | £2,280,000 |
The bigger picture
Your private pension is just one part of the equation.
And if you’re eligible for the State Pension, it can provide a helpful foundation in retirement.
But for a fuller choice, flexibility and comfort in your later life, building your own investment pot is essential.
Start small, stay consistent and be patient.
The earlier you start, the more time your money has to grow and the easier it becomes to reach the kind of retirement that gives you the freedom and peace of mind you’d like.
If you’re happy investing in one-size-fits-all funds, it could make sense to only have one default fund. That way you’ll know you’re not investing in the same places just through different funds.
The HL Ready-Made Pension Plan is a simple, low-cost investment solution, designed specifically for the HL SIPP. The plan is managed by experts and aims to grow your money when you’re younger, then lower risk as you get closer to retirement.
The underlying funds of the plan are managed by Hargreaves Lansdown Fund Managers Ltd, part of the Hargreaves Lansdown Group.
Patience can be a profitable virtue
The longer your money stays invested, the more it can ride out the bumps and grow.
This is where you need to understand risk, not fear it.
When we talk about risk in long-term investing, one of the considerations should be how much of your money is in shares (equities).
For someone with 30 or 40 years to invest, having 80% or more in shares is not uncommon.
Over time, equities have historically provided the best growth potential among traditional asset classes, even if you experience some ups and downs along the way.
But rather than trying to time the market, think about time in the market.
Your future self will thank you and till then, we’re here to help.
An easy way to get started investing
The HL Ready-Made Investments are all-in-one investment portfolios which were designed to make investing easy and accessible.
Simply choose the investment that best aligns with your goals and leave the rest to our expert managers to handle the investment decisions.
You only need to pick one of these funds to have a diversified investment portfolio.
Pay no ongoing charge to hold shares, ETFs, gilts, bonds and more in an HL Fund and Share Account
Open an account in minutes, then add money later
Choose where and how much you want to invest – without limits
Depending where you invest, other charges could apply. See full account charges.