Several games with different payout amounts and winning odds operate under the National Lottery brand. If you play Lotto and pick five numbers plus the bonus number correctly, your average prize would be £1m. However, your chance of winning is a dismal 1 in over 7.5m.
But do not despair! Thanks to the power of compound interest, you can still have £1m or even more in your account if you invest your savings, especially if you start young.
Women and investing
Women are much less likely to invest their spare cash than men and so miss out on significant wealth, especially in their retirement years. This is especially problematic when you consider the fact that on average, women live longer and earn less than men. In other words, there is not only a severe pay gap between the genders, but a pensions one too.
Although closing the pay gap may be beyond the control of most workers, closing the pension gap is far easier.
Knowledge is Power
As people near retirement, their biggest worry centres around money, or rather the lack of it. Surveys point out that many people who are over the age of 55 have low levels of monetary wealth and very little in assets other than their homes. A large percentage believe that they have failed to plan for retirement adequately.
Financial knowledge and planning are clearly related. People with higher financial literacy are more likely to plan successfully for retirement. But you don’t have to be a financial insider to make sensible plans for your future.
The first step would be to think about how much your retirement may cost and how you’ll pay for it. Then look at the various financial products available to save for retirement. One of the key channels in which you could invest your hard earned money is the stock market, either through individual shares or tracker funds.
Longer-term ‘Bet’
My Motley Fool colleagues have written at length about funds and stocks to consider for a diversified retirement portfolio and have pointed out that the stock market returns about 7%-9% annually on average. You can also find financial calculators online to see how much your savings would grow over time.
Let us assume you are 25, would like to invest £1,000, in a fund now and would make an additional £3,600 of contributions annually at the end of the given year. You have 40 years to invest. The annual return is 8%, compounded once a year. At the end of 40 years, the total amount saved becomes £954,327. If the annual return increases to 9%, the amount becomes £1.247m and if the return is 10%, the final number is £1.638m.
If you can increase how much you can save per month, say to £400 (or £4,800 a year), the amount at the end of 40 years at an annual return rate of 8% is £1.265m.
To recap: these numbers show that a person who saves about £3,600 per year for 40 years, starting at the age of 25 and investing in various funds, could achieve a nest egg of around £1m at the age of 65.
In other words, there is no need to play the lottery as we can pretty much all become millionaires in our lifetimes. Just remember is to start early and save a definite amount each month.
