Compare and Invest Founder and CEO Bella Caridade-Ferreira offers this suggestion, 16-year-old Luke Littler earned £200k coming second in the Darts Championship.
The tax man will take £83.7k of that leaving him with just £116.3k.
As Luke is very young, he can make his money work harder for him until he retires. If Luke invested his £116.3k for 50 years, his money would grow to a whopping £2.1m over 50 years (growth rate of 6%)
As the calculations below show, the longer you are in the market, the greater the growth.
“However, if Luke put 60k into a pension (the maximum annual contribution), he could reduce his tax to just £58k, giving him £143.3k to invest. That’s because the Government gives you tax relief on annual pension contributions of up to £60k, essentially cashback of £27k for Luke.)
“The £27k difference is small, but over time it adds up. Over 50 years, it means that Luke’s investment more than doubles. But even over 25 years, the 27K earns him a further £390k. The moral of the story is therefore to invest as much as you can for as long as you can.”
Amount interest rate years final amount
£116,300 6% 10 £181,575
£116,300 6% 25 £461,210
£116,300 6% 50 £2,142,264
£143,300 6% 10 £229,130
£143,300 6% 25 £850,780
£143,300 6% 50 £5,097,297
Note: Calculations have been run based on a standard 6% annual growth. Potential investment returns would normally vary year on year and the ultimate results could be lower or higher than the sums shown.
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