Almost one in four of us expect to be worth a million at some stage*, and for an awful lot of people, it’s not beyond the realms of possibility. Being a millionaire isn’t what it used to be. It’s still a huge amount of money, but it’s no longer an unimaginable level of wealth. There are several ways to get ourselves on the right path.
Inflation has taken a toll on the value of £1 million. To have the same kind of spending power as £1 million would have been worth in 1998 – when the gameshow “Who Wants to Be a Millionaire?” launched – you’d need £1.8 million today.
To have the same spending power as a million back when the song was first released in 1956, you’d need more than £20 million today. To be among the top 1% of the country – in 2020, you’d have needed £3.6 million.
Inflation has also brought £1 million within reach for far more people, through a combination of wage rises, house prices rises and investment growth. As a result, almost half of those aged 18-34 expect to become millionaires, and a third expect to do so by the age of 50.
However, it’s far from a foregone conclusion. Average (median) wealth is £300,000. This rises among retired people to £489,300. However, older generations might have benefited from things like final salary pensions and long periods of dramatic house price growth. Younger people need to consider their routes to wealth carefully.
This article isn’t personal advice. If you’re not sure what’s right for your circumstances, ask for financial advice.
All investments and any income they produce, can fall as well as rise in value so you could get back less than you invest.
You usually need to be at least 55 before you can take money out of your pension (rising to 57 in 2028). ISA, pension and tax rules can change, and the value of any benefits depend on your circumstances.
The power of pensions
If you look at how we hold wealth in the UK, the biggest chunk is made up of pensions – which account for 42% of it. Holding a significant sum in your pension is becoming more important to secure a decent income in retirement, and the removal of the lifetime allowance gives you flexibility to amass a bigger sum.
If you built a £1 million pension, took all your tax-free cash, and used the rest to buy an annuity, you’d have a pension income of around £47,700 – plus whatever you got from the state. It’s a big pension, but it’s not riches beyond your wildest dreams.
Annuity incomes hit six-month high – is now the time to buy an annuity?
It's well worth understanding how much you need in your pension, and how you’ll get there. You might not need a million for the income you want, but it’s worth using a pension calculator to find out where you stand. That way, you’ll know whether you need to tweak your contributions in order to hit your pension goals.
4 tips to boost your retirement savings in a cost-of-living crisis
Property – how to get started
Over a third of our wealth is held in property. Given how prices have risen, it’s far harder to get started than it once was. There are also no guarantees that house prices will continue to rise at the pace we’ve seen in recent years.
However, owning your own property by the time you finish work will make sure you don’t need to find rent on top of everything else in retirement. It also gives you downsizing options too, so it’s well worth prioritising.
Having parents who can afford to help their children onto the property ladder can make a huge difference. So if they can help, it’s hard to overstate the difference it can make in the long run.
However, if parents aren’t in a position to help, there’s still help available. If you’re between 18-39, and have at least a year until you plan to buy your first property, you could consider a Lifetime ISA (LISA).
You’ll also get a 25% bonus added by the government on top of anything you pay in each tax year (up to £4,000). This means you could receive a £1,000 bonus each year.
There are those who see property as the best and only way to a million, so will invest in property outside their own home. If you take this approach, you need to consider all the risks carefully. This ranges from your exposure to interest rates, to the focus of all your investments in one asset class, where it’s incredibly difficult to spread your risk. There are implications to consider from tax to legislation.
There’s also the risk of vacant periods or tenants being unable to repay the rent. We think people tend to feel property must be less risky, because they own their own home, but as an investment it’s a very different proposition.
You can only add money into a LISA until your 50th birthday. And if you take money out before age 60 (for anything other than buying your first home worth up to £450,000), there’s usually a government withdrawal charge. This is currently 25%, so you could get back less than you put in. Tax rules can change and benefits depend on circumstances.
Investing secrets of ISA millionaires
Some 13% of our wealth is held in financial wealth – including investments – and the wealthier we are, the bigger percentage is held this way.
The wealthiest 10% of people in the UK have £1 million in financial assets alone. We know from how our ISA millionaires behave that you don’t need to take massive bets on risky companies to hit this kind of holding.
The average age of our ISA millionaires is over 70. With so many years of investment under your belt, regular and consistent investment in a balanced portfolio over the very long term can slowly help build your way to a million.
The question isn’t therefore whether you want to be a millionaire, or whether you could expect it long term but what are you doing to make sure you try and hit this goal or another life goal that’s more important to you?
Investing like a millionaire – our ISA millionaires’ most popular funds
*Opinium survey of 2,000 people for HL 9-19 May 2023
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