4,000 ISA millionaires? That’s how many there are, according to a recent Freedom of Information request. It’s gone up three times from the year before, and it’s estimated that nearly all of those were via Stocks and Shares ISAs.
These ISA accounts are great for investors. The tax advantages make it easier than ever to target a million pounds or more. In this article, I’d like to explain how I’d aim for it by only investing £455 per month. First though, let’s look at those numbers a bit closer.
It’s now 4,000 ISAs with over a million in them, with the average of those accounts being £1.4m. I’m pleased to see UK savers building wealth like this, and it’s hardly a surprise when I dig into it. Even a modest 4% withdrawal would give a yearly second income of £56,000.
That sounds pretty good to me. I could set up my investments so I receive dividend payments from companies on a regular basis. That way, I wouldn’t even need to sell any stocks. I’d just collect the dividends and get a passive income.
And remember, because this is an ISA, that’s a tax-free income. I’d get the full amount – about £4,700 per month at 4% a year – in my account without worrying about the taxman taking a piece.
An income that high would be wonderfully liberating. It’s about five times the State Pension, which would give me a very cosy retirement.
Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.
ISA millionaires
But I wouldn’t even need to build to an income that high. I could start withdrawing early if I wanted to cut down on hours at work, take a less stressful job or even retire early. These are all possible goals for anyone who can commit to saving and investing.
A crucial detail here is that ISAs have a deposit limit. It’s not like I could just deposit a million pounds and call myself an ISA millionaire. I’d need to grow my wealth with stocks and shares.
The limit now stands at £20k a year which isn’t that much if I’m going for a million. I’d need 50 years of depositing to get to my target just by saving the cash. Clearly, I need to take advantage of the returns I can get with stocks, especially if I’m aiming for it with just a monthly £455.
How it might look
I will point out that investing in stocks is not for everyone. Anyone who does it needs to accept there are a lot of ups and downs, and the markets will crash every so often too. And even over the long run, the return of stocks is not guaranteed.
If I was happy to invest in stocks though, how would it work in practice? Well, I said I’d aim for my target by investing £455 a month. Here’s how that might look. I do need to bear in mind that the top rate of return here (12%) isn’t simple to achieve, especially over longer periods.
| £455 a month | |||
| 6% | 9% | 12% | |
| 10 years | £74,285 | £86,944 | £101,936 |
| 20 years | £207,319 | £292,773 | £418,535 |
| 30 years | £445,562 | £780,043 | £1,401,842 |
