 |
|
"The Cost
of Delay"
The "Cost of Delay" - is the difference between the
contribution you need to make if you start your investment now
compared with the amount you would need to put in if you started
at a date in the future and still want to get the same fund
of money to fund your income in retirement. To ensure a worthwhile
income in retirement the best time to start planning is NOW!
The following example illustrates achieving a fund of money
of £1,000,000 at age 60 using a typical offshore retirement
plan with a net annual return of 5%.
Age
next birthday
at outset |
Years
of Investment |
Monthly
Payment |
Total
Cost |
Cost
of 1yr delay
|
Fund
assuming 5% pa net return |
30
|
30
|
£1,349 |
£485,640 |
- |
£1,000,000 |
31 |
29 |
£1,438 |
£500,424 |
£14,784 |
£1,000,000 |
40 |
20 |
£2,640 |
£633,600 |
- |
£1,000,000 |
41 |
19 |
£2,873 |
£655,044 |
£21,444 |
£1,000,000 |
50 |
10 |
£6,981 |
£837,720 |
- |
£1,000,000 |
51 |
9 |
£8,216 |
£887,328 |
£49,608 |
£1,000,000 |
"How many Pay Days do I have left?"
You may feel that retirement is a long way off but look at
it this way. This example assumes Retirement at age 60 and mortality
at age 75. Put this way - it's not a long time.
Current
Age
|
Number
of ‘paydays’ to fund for retirement
|
Number
of ‘paydays’ after retirement |
30
|
360
|
300 |
40 |
240
|
300 |
50 |
120
|
300 |
"But I'm from a country where there
is a state pension, so if times were hard the State would help
me"
Yes, of course there may be a state pension. However there
are two considerations here.
Firstly, did you continue to pay any necessary contributions
to that State Scheme while you were living abroad? If not depending
on how long you worked overseas this could reduce your entitlement
or even mean you could get nothing. Even so any the pension
that the state pays is almost certainly not going to keep you
in the kind of lifestyle that you want in retirement.
More importantly State pensions may not even exist when you
reach retirement age. For instance in the UK there is already
talk of raising the age of retirement to 70 meaning you will
get nothing from the State until you reach 70.
Also most State Pension Schemes are not funded. This means
that where you have a company pension scheme or a personal scheme
that you have paid into, the money your company or you pay goes
into a fund and it is that money that will eventually pay for
your income in retirement. ie it is held in a "Fund".
Most State Schemes have no such fund. The State pensions paid
out this month are paid from some of the money collected by
the Government this month, for example from taxes and National
Insurance or equivalent contributions. In 1946 in the UK there
were some 18 workers contributing to pay one person’s State
pension. Currently it is 2.2 workers to pay for one person’s
pension. The situation will continue to get worse, as over the
coming years the workforce worldwide will get smaller and smaller
and at the same time we are living longer and longer.
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