Many people – most, maybe – assume that having a £1million portfolio is something other people do.
The savvy investors; the people who started early; people earning massive salaries. People who grew up in wealthy families, whose parents taught them all about stocks and shares and building assets from their teens.
Maybe you feel this way, too (which I totally get, by the way!).
But actually, while £1million may seem like a massive number, it’s WELL within reach for many business owners and professionals earning around £50,000 a year. It’s just about understanding HOW to use what you already earn in a more strategic way, so you can end up with a decent pot.
Don’t believe me that it could be possible for you?
Well, today I want to change your mind! Let’s look at how someone aged 40, bringing in £50,000 a year, could build a £1million portfolio through pensions and ISAs by the time they’re 67.
Of course, I know you might be either a sole trader, a director of a limited company, or working in a salaried role. So in a bid to be the most helpful I can be, let’s compare what you might do in each of these situations.
A quick note on growth rates before we start:
I just want to make it very clear here, that investment growth isn’t guaranteed. Some years will be higher, others lower — but over the long term, it averages out.
In today’s blog, we’ll use two simple assumptions:
- Cautious growth: around 5% a year
- Average growth: around 7–10% a year.
So let’s dive in!
1. If You’re Employed
If you’re employed, you’re probably already paying into a workplace pension through auto-enrolment.
Of course, if you’re earning more than £50,000 a year, you’ll be able to build a bigger pot much more easily. If this is you, then it’s definitely worth getting help from a professional to make 100% sure that you’re using all your allowances properly (which I can help with – just use the Whatsapp button below to get in touch).
But on a £50,000 salary, here’s how it normally looks:
- You pay in 5% of your gross salary
- Your employer adds 3%
- On £50,000 a year, that’s £2,500 from you and £1,500 from them — a total of £4,000 a year.
Which is a great foundation!
Over 27 years of your career, that £4,000 a year could roughly grow to:
- £330,000 at 5% growth
- £440,000 at 7% growth
- £690,000 at 10% growth.
Which, as I say, is a solid place to start. But you can see that even with decent returns, auto-enrolment alone won’t get you to £1million.
The key here is to keep using your workplace pension but also to add to it, with your own ISA or additional pension contributions.
To hit £1million by age 67, you’d need to invest roughly:
- £17,500 a year (£1,460/month) at 5% growth
- £12,000 a year (£1,000/month) at 7% growth
- £7,000 a year (£580/month) at 10% growth.
Your workplace pension already covers £4,000 of that, so adding around £600–£1,000 a month into an ISA or pension top-up could get you to that £1million.
2. If You’re A Sole Trader
If you’re self-employed, you don’t get an employer contribution, but you do get something just as valuable… tax relief!
Let’s say you pay£800 a month (£9,600 ayear)into a personal pension.
The government automatically adds 20% tax relief, which brings your total investment up to£12,000 a year.
Over 27 years that could grow to:
- £680,000 at 5%
- £950,000 at 7%
- £1.6 million at 10%.
So even at average growth, £800 a month could get you to your goal of £1million (or £1,000 – £1,200 a month if you prefer more cautious growth).
If you want more flexibility with when and how you can access your money, you can also look at using ISAs alongside your pension. It’s about using the right range of tax wrappers so that the money is there as and when you need it.
Of course, I do know that £800+ a month can sound like a big old number, especially if you’ve not been putting anywhere near this into your pension up until now.
One thing I specialise in is helping my clients maximise their allowances and uncover other ways to free up as MUCH cash as possible now, so you can both grow your wealth for the future AND live the life you want along the way. There’s no point stashing all your money away if you’re completely miserable living on beans on toast in the meantime.
Again, just tap the Whatsapp button below if you want to find out more.
3. If You’re A Limited Company Director
If you run your own limited company, this is where it gets really tax efficient.
Your business can pay directly into your pension as an employer contribution. This counts as a business expense and so is super tax efficient, as it then reduces your corporation tax bill. Win win!
For example:
- Your business pays £12,000/year into your pension
- That saves £3,000 in corporation tax (at 25%)
- So it costs the business £9,000 but you still get the full £12,000 invested.
Over 27 years that could grow to:
- £680,000 at 5%
- £950,000 at 7%
- £1.6 million at 10%.
To comfortably reach your £1million goal, you’d want to be contributing around £12,000 a year at average growth (or£15,000 a year if you prefer more cautious growth).
I just want to point out here… I’ve worked with thousands of business owners over the last decade and many directors pay themselves £50,000 a year for WAY longer than they should.
They get hung up about paying higher rate tax – and I’ve witnessed over and over again how liberating it is to realise that 60% of something is better than 100% nothing!
You can pay yourself £50,000 a year AND still put £60,000 a year into your pension from your limited company.
Your personal pension contribution is limited to the ‘salary’ part of your income (not including your dividends) but this does not affect how much your ‘employer’ puts in from your business.
Again, I can help you to get clear on all this and maximise the ways to free up more cash now from your business, to put into your pension. Just send me a quick message using the Whatsapp button below and I can fill you in.
So!
Whatever position you’re currently in, it genuinely IS totally do-able for you to create that £1million portfolio. It doesn’t need to be complex or risky – it’s about consistency and starting NOW, so your money has to maximum amount of time to grow.
It’s about having the right knowledge and support to a) free up as MUCH cash as you can now, so you have as much to invest as possible and b) using your money in the most tax efficient way and in right tax wrappers for you (which is different for everyone).
If today’s blog has got you thinking, the best next step is to book a Wealth Strategy Call. We can map it all out together and see what’s possible for you.
To book your call, just send me a WhatsApp message using the button below or via the Contact page.
Because honestly, you may well be closer to that £1million portfolio than you think!
Until next time,
Claire