How you could become a millionaire using saving accounts.
SAVING diligent saving into multiple vehicles see parents making their children millionaires before turning 30?
Combining tax-free, high interest savings strategies may have the potential to make a person a millionaire on paper before they turn 27. Managing director of Woodward Financials, David Woodward, shared the roadmap to millions using JISAs, ISAs and SIPPs.
The economy and savings landscapes has changed dramatically over recent years, to the point that millionaire status may be tangible with some diligent strategies.
Mr Woodward noted that at the start of the millennium he believed “it would take a lifetime” to become an ISA millionaire due to low maximum contribution levels.
However, he highlighted “things have changed”, adding that these previous realities could still be holding Britons back from grasping the full potential of Junior SIPPs and JISAs.
He commented: “ISAs are truly one of the best, if not the best tax efficient investment vehicles available to investors, tax free growth, tax free income. Why would you not consider an ISA?”
Previously, ISAs and JISAs had a relatively low maximum contributions amount, making it somewhat unattractive for savers.
However, in 2017 the maximum contributions were raised to a sizeable £20,000 which can be split across an array of ISAs or all invested into a single product.
Mr Woodward explained that Britons over the age of 18 at the start of the millennium could have become ISA millionaires in their 40s, with a net growth of 12 percent per annum by maxing out their contributions each year.
Mr Woodward explained: “Fully subscribing to your ISA since 1999/2000 would have meant you would have already contributed £266,560 but why was the ISA taken out in the first place, was it a repayment vehicle for a mortgage? Or was it surplus income to plan a nice retirement?”
He shared that regardless of what one is actually saving for, maxing out ISA contributions every year “is certainly something you should do”.
“Even with a modest net growth of six percent starting at 18 years of age or earlier increases the chances of becoming an ISA millionaire in retirement, not to mention being a zero-rate taxpayer if this is your only retirement provision.”
JISAs maximum contributions limit was only raised in 2020 to £9,000 per annum, with Mr Woodward adding that it is “a good start”, noting that Britons who max out this amount until the turn 18, and then continue to max out their ISA contributions at the same net growth of 12 percent could make them ISA millionaires in their 30s.
Mr Woodward continued: “You could be a millionaire on paper by the time you are 27 years old if you were lucky enough to net a constant return of 12 percent.”
Additionally, the benefit of starting an investment as early as possible allows for a greater risk appetite, meaning there is more potential to earn even greater returns.
Although, it should be noted that every investment has capital at risk and investors are usually advised not to invest more than they could afford to lose.
All of these numbers are on paper and are often greatly impacted by real-life situations and events such as the pandemic, recessions and life milestones like buying a home.
Mr Woodward explained the reality of becoming an ISA millionaire: “Applying a more realistic net growth rate of seven to eight percent, many investors would need to wait another five to ten years before becoming a millionaire using SIPPS and ISAs.”
Mr Woodward continued: “So where does the money come from? A Junior SIPP contribution while still a toddler or a Junior ISA is hardly likely to be funded by your pocket money, and contributions would normally be provided from parents or grandparents utilising their annual £3000 inheritance tax allowance or surplus saving, as they say something is better than nothing.”
A child can have £2,880 in a junior SIPP and achieve 20 percent tax relief, which can be utilised alongside a JISA although the benefits of having a SIPP will only be actualised at the age of 55, which is rising to 57 in 2028.
Mr Woodward concluded: “It is not the investment vehicle that makes you a millionaire, they just help. It is what you are invested in and the advice you receive as to what to invest in that makes the difference. Some investors want quick growth from direct equities exposure, some want a smoother ride from a fund-based approach.
“Whatever direction an investor takes, the best approach tends to be ‘preserve capital, get rich slowly and stay rich until you die’.”