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 [老中ZT/退休] Is £1 million enough to retire on? |
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laozhong
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作者：laozhong 在 海归酒吧 发贴, 来自【海归网】 http://www.haiguinet.com
Is £1 million enough to retire on?
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By Nic Cicutti, MSN Money Special Correspondent
November 09 2005
When I was young, being a millionaire was a really big thing. One million quid was a stupendous amount of money, enough for most of us never to bother doing another stroke of work ever again.
Today, it’s all different. According to Experian, the credit agency, there are about 50,000 millionaires in Britain, with hundreds more joining that previously exclusive club every year.
Meanwhile, inflation has whittled away at the magic quality of the tag. And home ownership nowadays means that it is increasingly possible for many of us to be millionaires by the time we retire, at least in terms of total assets owned.
It just doesn’t go that far any more
Perhaps we shouldn’t be surprised that that a recent survey by Royal Mail found 10% of UK residents in their 20s or 30s believe the sum is not enough to be considered a win of a lifetime.
To be honest, part of me understands why people might say that. A million just doesn’t buy as much today as it once did.
On the other hand, another side of me thinks this is a grotesque example of the pervasiveness “so what” culture. To look down one’s nose at such a vast sum of money, one that most people are unlikely to reach, despite the seeming ease with which it is possible to reach the amount, seems perverse.
So, how far can you get with a million quid - and what is the quickest way of getting there?
What does £1m buy?
Well, it all depends on a range of factors, including whether you want the money to buy a home, or to provide an income, how old you are and whether you want to leave any assets behind when you die.
Buy a home
Here, the world is your oyster. You can pay anything from a few thousand pounds to the full million. Note that the more expensive the home, the more expensive the upkeep, especially if you are buying something built more than 50-100 years ago.
Income
A financial adviser I know reckons that to work out how much money you need, the best way is to multiply your chosen income by 25.
The reasoning behind this is that you need a 4% yield from a variety of asset classes to generate the income you need, plus take inflation into account, while leaving your capital “reasonably” safe.
Therefore, a £1m pot of money will buy an annual income of about £40,000.
Age
The amount you receive might be more in certain cases. For example, if you were in your 70s, it might be possible to use an annuity to your benefit: generally, the older you are, the larger the annual income you can command from an annuity, because it is assumed you will not live as long as someone in their 50s, say.
Dependents
If you don’t have dependents to leave money to, you could actually gradually eat into the lump sum itself. This ensures you will receive a bigger income. But it is a high-risk strategy: what happens if you live longer than expected?
When to give up the day job
Most experts suggest you need to have two or three million in the bank, thus earning at least £80,000 before tax every year.
For a two-adult, two-child family, it increases to £5m.
This would produce a pre-tax income of about £200,000 if none of it was spent beforehand, and about £167,000 a year allowing an initial outlay of £750,000 for a dream home, £50,000 on gifts to family members and £20,000 on an immediate luxury holiday.
How to get that kind of money
OK, let’s assume that, for most of us, what we are looking for is the equivalent of £1m in addition to the home we live in.
In that regard, we are not looking for luxury, just somewhere comfortable. And we are prepared to release equity from our existing assets to ensure we reach that £1m figure – or come close to it.
Let’s assume also that we can include things like our pension fund and other assets into the mix.
There are several ways of getting to the magic million.
Property
This is the best chance most of us will have.
If you buy a £150,000 house tomorrow and faithfully pay off the mortgage over 25 years, assuming property prices rise by 5% a year between now and then, you will own an asset worth about £508,000. For the value of that asset to grow to over £1m, all it takes is annual house price inflation of 8% over 25 years.
Is this realistic? In the past 20 years, according to figures from the Halifax, the average price of a UK property has risen from £25,658 to £162,850. That represents annual growth of 9.7%.
When you get to 65, all you then do is sell up, move somewhere smaller and take the capital to live off.
Pension
To reach £1m through a pension only, a 25-year-old would need to put into their pension about £650 a month for 40 years, assuming compound growth of 5%. Bear in mind that inflation will erode the value of that £1m.
Taking tax relief at the higher rate into account, the actual contribution per month falls to about £450. If employers’ contributions are made, the amount you have to contribute will fall even more.
Inheritance
One in 40 people in the UK inherit an average of £17,500 each year. The total after tax is £31bn.
The average estate leaves £90,000 net of tax and the average amount received by each individual is £17,500, suggesting that, on average, people share out their bequests between five people.
Some 10% of beneficiaries receive £50,000 or more. A further 30% receive £10,000 or more, enough to make a down-payment on a home or pay off a sizeable chunk of a mortgage.
Were that £17,500 invested over 25 years, at an annual growth rate of 6%, compounding, the final payout would be worth about £75,000.
Bear in mind that these figures apply to money being inherited today. The way house prices have been rising in the past decade, it has been calculated that in 20 years\' time, 83% of average households will be over the £275,000 inheritance tax threshold, with some significantly over that amount.
Sell the business
Every year, tens of thousands of people who have spent their lifetimes building up flourishing businesses sell up and move on – either into retirement or simply to other opportunities.
The amount they receive is based on a series of complicated calculations and past practice, based the individual business.
For example, a book store might go for 15% of annual turnover plus inventory; a furniture shop for up to 25%, a travel agency for up to 60% of annual commission.
Here is a link to a site that gives more examples:
For those who have created a successful business, this opens up the potential for a sizeable chunk of that million coming from the sale to someone who will hopefully take it to the next stage.
Marriage
According to National Statistics, the average age at marriage for all brides in 2004 was 30.1 years. This compares to 27.2 years in 1994 and 24.4 years in 1984. The average age for the groom was 32.4 years, up from 29.3 years in 1994 and 26.6 years in 1984.
Think about it: that offers the potential for couples to combine assets they have built up before getting married.
In fairness, it should also be pointed out that the one major asset – property - that two young people can bring to a marriage is getting harder to buy. First-timers are getting older: back in 1984, the average age was 31; today it has risen to 34.
But this is an average, which means that for every person over 34 who buys a home for the first time, there are plenty of people who manage to do so in their 20s.
Conclusion
The magic million has been devalued but – despite all suggestions to the contrary – it’s still not a bad chunk of money to have.
After all, if the average annual income in the UK in 2005 was £22,000, then the £40,000 that a cool million will buy you is hardly to be sneezed at.
And the chances are that, with a bit of imagination and hard graft, you are highly likely to get to that amount if you approach it from a combination of sources.
By the way if you want a calculator to tell you how long it make take before you become a millionaire, here are a few:
Mitchell Charlesworth
NeedanAdviser
作者：laozhong 在 海归酒吧 发贴, 来自【海归网】 http://www.haiguinet.com
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 [老中ZT/退休] Is £1 million enough to retire on? -- laozhong - (8047 Byte) 2006-7-20 周四, 13:39 (1279 reads)
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