Young investors may need over £2 million to match today’s £1 million at retirement, as inflation erodes purchasing power, says interactive investor.
Analysis from the DIY investment platform shows that investors in their mid-20s aiming for today’s £1 million purchasing power at retirement would need to build an ISA pot of £2.2 million over a 40-year period, once inflation is factored in.
Meanwhile, an investor aged 35 would need to accumulate £1.8 million over 30 years to have an ISA pot worth £1 million in today’s terms. Those aged 45, 55 and 60 would require pots of £1.4 million, £1.2 million and £1.1 million respectively.
Myron Jobson, senior personal finance analyst at interactive investor, said: “The ISA millionaire’s club of tomorrow will have a higher entry fee. Those planning for the future must adjust their targets accordingly, because standing still in investment terms often means moving backwards in real terms.
“Inflation – the silent eroder of purchasing power – means that the cost of goods and services rises over time. What £1 million buys today will be significantly less in 20 or 30 years. Even at a relatively modest inflation rate of 2% a year, the real value of £1 million would be slashed by more than half in 25 years. In other words, an investor who aims to be a ‘millionaire’ in the future might need closer to £2 million to enjoy the same spending power.”
Jobson said investing wisely is key. “Assets that outpace inflation over the long term, such as equities, can help protect and grow wealth over the long term. While market ups and downs are part of the journey, history shows that long-term investors who stay the course tend to fare better than those who sit on the sidelines,” Jobson added.
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