It’s Possible To Save £1m Even If You Are 50 With No Savings

If you’re aged 50 or over and want to retire with a £50,000 a year pension, can you do it?

You need a £1 million pension pot to generate that level of retirement income and the target looks like an impossible mission, but it’s not so far out of reach as many people believe.

After all the odds are stacked in your favour.

Although traditional advice is to start saving a little as early as you can, few earners have enough cash to put any significant savings into a pension until they reach their salary peak in their mid-40s.

With a little luck, as the highest level of lifetime earnings click in, some big drains on finances also drop-off – such as mortgage costs and the expense of bringing up a family.

How much to save

The trick to putting away a £1 million pension pot is utilising some good financial advice to help take advantage of available tax reliefs and allowances that can boost your savings.

The maximum someone earning a realistic income of between £60,000 and £100,000 a year can save in a pension is £40,000 annually.

That means a 50-year-old can start at zero and hit a pot of £985,000 in 17 years, says financial firm Old Mutual Wealth.

That includes annual growth of 4% after charges plus tax relief.

Take away the tax relief and the money a retirement saver must find is much less – £27,000 a year if the lifetime allowance and annual contribution limit stay the same.

Pension v ISA

That still leaves a heady £2,250 a month to save, but if the mortgage is cleared, a good part of that is already there each month.

Taking the money out gives a 25% tax-free lump sum of £250,000 and a fund of £750,000 to take as a taxable income or more taxable lump sums.

Old Mutual calculated that pension saving gives a better return than ISAs.

The annual savings limit for an ISA is £20,000 and 17 years of saving would amount to £372,000 when the same 4% growth rate is added.

The ISA pot would be tax-free, while the pension pot would be subject to tax after taking the 25% lump sum.

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