One of the biggest factors in how large your investments or pension will grow is not actually the money you put in, but the time it spends invested.
This is because of compound interest, where each period you earn interest from your original deposit combined with the previous interest you’ve made. So, if you put your money in a fund last year, and you made a 6% return, now this year you will earn interest on your original investment plus the 6% you made last year. When left for long enough, an investment can grow exponentially.
The below figure represents two situations, a 21-year-old, with 44 years until retirement who starts contributing €100 every month into a pension, the second person left it a bit later until age 40, but he can afford to put €350 every month into his fund.
In the first scenario, both pension funds are averaging a 6% per annum return and are compounded annually. In this scenario, not only does the 21-year-old contribute less at €52,800 (40-year-old contributes €105,000), but he also retires with more money, the 21-year-old has €246,301.65 when he reaches retirement, and the 40-year-old has €236,767.80.
If the investors both earned an 8% per annum return, the 21-year-old would have €444,045.36 at retirement and the 40-year-old would have €318,303.26.
The sooner you start the better, but even if you’re older it’s not too late. You can claim tax relief on a higher percentage of your earnings, so there is still time to catch up. If you require advice on starting a pension or investment, please feel free to contact email@example.com
Warning: These figures are for illustration purposes only. They are not a reliable guide to the future value of your investment. Warning: Past performance is not a reliable guide to future performance.
Warning: If you invest in this product, you may lose some or all of the money you invest.
Warning: If you invest in this product, you will not have any access to your money until your retirement date.
Warning: The value of your investment may go down as well as up.