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Paul Feeney, chief executive of Old Mutual Wealth recently talked about ‘Generation X’ and how they are delaying planning for retirement. Through YouGov they had conducted a survey of 30-45 year olds, it concluded that 90% had not started planning for retirement. The average age they had planned to start was 45, approximately 20 years before retirement. Below we have tried to illustrate the practicalities of this action for the younger working generation.

The chart shows four scenarios all starting investment at different ages and finishing at the age of 65 years old. The graph assumes £100 a month is invested throughout the investment life and shows the profit that could be achieved at various levels of compound investment return. A longer term investment period allows momentum to build through the compounding effect; as capital value gets larger, profits grow and are reinvested to grow even larger. For example an investor starting out at 25, saving £100 a month at a 5% annualised return would achieve a profit of £104,208 on a £48,000 investment. However, saving £200 a month and starting at the age of 45 would achieve a profit on investment of just £35,326 on the same £48,000 investment.

We conclude that investing early is far more influential in achieving long term goals and would require greater contributions later in life to equal the same capital growth.

compound returns graph