Pension and Individual Savings Account (ISA) savings are different approaches to financially planning, but can potentially produce favourable outcomes. For those planning towards retirement, building up a pension pot over a number of years is likely to be a sensible approach. However, for those who wish to have a degree of flexibility and access, ISA saving could be an option more suited to their needs.
Regardless of how a person chooses to save, building up a significant amount of money is usually the key.
Indeed, many will be searching for ways to accumulate as many assets as possible to support them once they leave the workforce.
Money in retirement is particularly important as people no longer have their constant salary to rely upon, and will otherwise only have the level of State Pension they have built up through National Insurance contributions.
There could be ways for Britons to become asset ‘millionaires’ by the time they reach retirement.
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“With a bit of planning and careful budgeting even savers with relatively modest incomes could become pension or ISA millionaires.”
Mr Selby took the example of a 30-year-old individual who makes annual contributions into their Self-Invested Personal Pension of £6,000 a year.
This is boosted to £7,500 by tax relief, and could rise each year by two percent as their salary grows over time.
In this example, the individual could have a retirement pot worth £1million by the age of 68.
If the same individual were to put money into an ISA, they could reach the £1million milestone by their 72nd birthday, with the benefit of the entire fund being available tax-free.
Mr Selby added: “While this is not going to be realistic for everyone, if you start early and aim to increase what you pay in by a modest amount each year, it could turn into a seriously chunky pot when you reach retirement.”
Considering a similar approach, a couple making annual pension contributions of £3,000 with an extra £750 of tax relief and a two percent increase each year could get a £1million retirement pot in 38 years.
Similarly, the same level of payments into an ISA would potentially create a tax-free £1million pot in 42 years.
Such a fund could provide a significant financial cushion for retirement, allowing Britons to pursue a number of later life goals.
However, when making momentous decisions, particularly in the long-term, it is generally advised Britons seek financial advice on the matter.
For pensions, individuals can speak to a financial adviser, or receive free and impartial assistance from Pension Wise or the Pensions Advisory Service.
Similarly, for ISAs, Britons could again speak to a financial adviser, or someone at their bank of choice who would be able to provide further insight.
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