In this forecast we estimate how much an increase in your retirement savings may add up to over time, based on the following assumptions:
You are a 30 year old, earning £30,000 a year. You increase your retirement savings by an extra 1% of your gross salary. This additional contribution is invested monthly, at the end of each month, from now until you reach retirement at age 68.
Your salary will grow at 3.75% each year (in line with a reasonable expectation for average salary growth), and therefore that your additional contribution will also increase at this same rate.
Your assets will grow at 5% each year. This is a very simplistic assumption that takes no account of the variability of investment returns (which can be either positive or negative) - but it is roughly in line with our expectation of the average long term return on a mixed portfolio of assets. More specifically, this figure is our estimate for the ‘median’ yearly return on a portfolio invested 70% in global equities and 30% in global bonds; ‘median’ means the rate of the return that you can expect to beat about half the time.
Please note that this does not take into account your actual investments or how they may behave.
We then estimate the value of what you have saved by age 68, including the total of your contributions and any growth on them.
We express this value in “nominal” terms, which means without taking into account the effect of inflation. Inflation means that the value of each pound you have is less in the future than it is today; although the forecast does not directly show the impact of inflation, we believe that it is a good idea to consider the impact it could have on the value of your money. We believe that a reasonable long term assumption for inflation is around 2% each year. This means that for every year, each pound you have is worth 2% less. In some cases, this could mean that, even if your investment grows over time, the value of what you can buy with it becomes less.
We do not take any tax into account in this calculation, and we are not assuming that you use any particular savings vehicle or product.
Please note that this calculation is not a personal recommendation and is only designed to illustrate how savings might build up over time. If you need additional help, please speak to an authorised financial adviser. You should regularly reassess the suitability of your investments to ensure they continue to meet your attitude to risk and investment goals. The value of investments can go down as well as up so you may get back less than you invest.