How to retire a millionaire with just £184 a month

RETIRING with more than £1million in savings may sound like a pipe dream, but with a little discipline and forward planning it’s more achievable than you might think.

The number of millionaire ISA savers jumped to a record high of 4,850, according to latest annual figures.

The average millionaire has a tax-free pot of £1,351,000, HMRC figures showed in a freedom of information request made by savings app Plum.

If you want to follow in their steps and amass a tidy lump sum for retirement, the trick is to start saving regularly as early as possible.

Even smaller amounts tucked away each month will build up over time into a big pot.

When you are saving money over long periods of time, for example 10, 20 years or more, it usually makes sense to invest the cash.

This way your returns are typically higher than if you’d saved in cash alone.

Investments can go down as well as up, but over longer period of investments, losses have more time to even out and make returns.

Another perk of investments is that they often pay dividends every three to six months.

These are cash payments to investors, which are a reward for investing in companies or funds.

If you keep these dividends in your savings pot, you will build up a returns much faster.

WHAT IS AN ISA?

Individual savings accounts (ISAs) offer tax-free savings on up to £20,000 a year.

You can save money in a cash ISA or keep investments in a stocks and shares ISA.

The accounts are appealing because you don’t pay tax on any money in this account – no matter how much interest you earn.

In a regular savings account, basic rate taxpayers have to pay tax on interest from their savings if they earn more than £1,000 a year.

So if you are planning on pulling together a large sum of cash such as £1 million, it’s usually a good idea to use an ISA.

GET RICH SLOW

The younger you are, the easier it is to get rich by saving small amounts over a long period of time.

Dan Coatsworth, investment analyst at savings platform AJ Bell, says: “To illustrate how you might get to a £1 million, investing the full amount at the start of each tax year and achieving an annual 7% total return through either capital growth, dividends or both would mean you hit the milestone after 21 years, assuming the allowance doesn’t change.”

This means if you start saving at 50, you could become a millionaire by the time you are 71.

The average age of a millionaire holding an Hargreaves Lansdown ISA is 72.

However, saving £20,000 a year is quite a tall order for most of us.

Dan adds: “Time in the market is important, not just so you can ride the market ups and downs but also to let your wealth build up.

“The trick is to start as early as possible with what you can afford to invest. Increase your contributions as you get older, such as when you get a pay rise.”

For example, Sarah Coles, head of personal finance at savings platform Hargreaves Lansdown, said: “If you were able to start at the age of 30, and max out your ISA by paying in £1,666.66 a month, if you got 5% growth, you would be a millionaire by the age of 57.

“But if you were to pay in £300 a month from the age of 25, with 5% growth, you’d be a millionaire by the age of 70.”

If your investments returned 7% and you started saving at the age of 20 you could become a millionaire at the age of 70 by putting away £184 a month.

BE CONSISTENT

The key to amassing big sum of cash is to be consistent with your saving.

This means saving every month that you are able to.

Dan says: “Feeding your account on a regular basis means you get into the habit of squirreling money away for your future.

“After a while you get accustomed to that money going into your ISA that you may not even think about alternative uses for it, such as going shopping or down the pub with your friends.”

It’s a good idea to create a budget working out how much you need to cover bills.

You should also clear any debt before investing money as well as making sure you have enough cash in a rainy day savings account that can access for unexpected life events.

Then any remaining money can be used to fund your lifestyle and to top up your ISA.

Try to invest as much as you can each month once you’re sure all the essentials are covered.

If you are new to investing, it’s a good idea to take some advice from an independent financial adviser. You can find a well recommended adviser through unbiased.co.uk.

If you want to invest yourself, make sure you have a variety of different investments.

This means if something goes wrong in one sector, you should be cushioned with different types of investments in other areas.

For example, a diversified portfolio might have exposure to shares, funds and bonds from around the world.

Dan adds: “It is important to be patient with investing, especially for someone hoping to be an ISA millionaire as the journey to build up this wealth could last for decades.”