In the second in our series, Andy Craig, author of How to Own the World explains why it’s more important than ever to start saving for your retirement early and why parents and grandparents can give their offspring a helping hand.
It is a very sad fact that very few people in the UK ever even think about investing in any serious way, Craig says. But by putting off investing for the future, you are missing out on something called compound interest which many say has been responsible for more wealth creation than anything else in history.
Imagine you invested £1,000 today and managed to make a 10% return over the following year. After one year, you would have £1,100. So far, simple. Imagine you invested that money again and the following year you then had £1,210. The key thing here is that £10 of that £1,210 is essentially free money because it is the return on your return. Over a longer period that free money grows and grows.
When you consider that you will need to have saved about £700,000 to create a retirement income for life equivalent to the country’s average salary, every penny of free money counts.
The other important reason to start saving early is government pension systems are going to be hard-pressed to support the next generation of retirees.
Craig says with ‘very few exceptions (Norway and Australia, for example), wherever you live in the world today you absolutely cannot count on being able to live on handouts from your government for the rest of your life when you stop working. It just won’t happen, yet most people are relying on just such handouts.’
In the UK, over 50% of the adult population have no effective private pension at all. ‘Sadly, the vast majority of the other 50 per cent have made completely inadequate pension provision, such that they will find their standard of living in retirement to be far lower than it was during their working lives, particularly given the real level of inflation., Craig says.
Andrew Craig graduated in Economics and International Politics in 1997. His first job took him to Washington, DC, where he worked for a US congressman on Capitol Hill. Since then he has spent over fifteen years working in financial markets for various firms in London and latterly New York. These included UBS, Crédit Agricole (France’s biggest bank) and SEB (one of Sweden’s largest banks).