How To Retire A Millionaire In Three Easy Steps

Posted on 08/02/2011

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  1. Don’t smoke.  In addition to being appalling for your health, smoking cigarettes also seriously harms your wealth.  At an average of 20 cigarettes per day and a pack costing roughly £6, this would set someone back £2,190 per annum.
  2. Save the proceeds into a pension scheme.  Under UK tax regulations, the government will add £1 for every £4 invested (essentially an income tax rebate).  The only catch is that this money cannot be accessed until retirement.  However, for a guaranteed day one return of 25%, saving into a pension scheme appears to make eminent sense.
  3. Let the powers of compound interest do the rest.  Over the long-run, the UK equity market has provided an annual real return of 7%.  Although returns can and do vary over the time, someone saving from 18 years old to retirement at 67 can reasonably expected to earn an return in this region.

Therefore by not smoking, investing the £2,190 savings into a pension scheme each year from the age of 18, receiving the rebate of 20% income tax and earning a 7% per annum return on the equity market, an individual could expect to retire at 67 with a pension fund of £1,037,510. Voilà.

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