Example 1:

If you start with £10,000, add £300 per month and earn an average annual interest rate of 5% over 20 years, your estimated final balance would be approximately £150,437.

Over that period:
– Total contributions: £82,000
– Estimated interest earned: £68,437

This calculation assumes interest is compounded monthly and monthly contributions are added at the end of each month. Actual returns may differ depending on when contributions are made, how interest is calculated and whether fees or tax apply.

Example 2: The cost of waiting 10 years

Imagine two investors who both earn an average annual return of 6% and continue investing until age 65.

Investor A starts at age 25 and invests £200 per month for 40 years. By age 65:

– Total contributions: £96,000
– Estimated interest earned: £302,298
– Estimated final balance: £398,298

Investor B waits until age 35 and then invests £200 per month for 30 years. By age 65:

– Total contributions: £72,000
– Estimated interest earned: £128,903
– Estimated final balance: £200,903

Although Investor A only started 10 years earlier, those extra years of contributions and compounding produce an estimated £196,000 more by retirement.

What this shows

Investor A contributes £24,000 more in total, but finishes with almost £197,400 more.

The difference is not explained by contributions alone. Investor A’s earliest payments have an extra 10 years to benefit from compound growth.

This example assumes monthly compounding, monthly contributions made at the end of each month and a constant annual return of 6%. Actual returns will vary and fees, tax and changing interest rates are not included.