The recent launch of the Lifetime ISA on 6th April 2017 can incentivise savings and encourage you to set aside £4,000 per year.
Here are a few incentives you need to know:
- You can open a Lifetime ISA between the age of 18 to 39;
- There are two specific purposes for it: one is to help towards your home deposit, or towards your retirement;
- At the end of each year, the government will contribute a 25% bonus, that’s £1,000 free money. The amount paid is based on your contribution, which doesn’t include interest, dividends and capital gains;
- That is why the maximum government bonus is £32,000 if you start at 18 and continued to make contribution till you are 50.
However, there is a 25% penalty for early withdrawals. Unless you are 60 years or over. Or, use it towards your first property purchase. Also, there is no penalty if you die!
(P.S. The Lifetime ISA scheme is like every other savings scheme and are subject to change in the future.)
Before We Start
You may ask yourself the following questions:
What is the difference between putting your money in cash or opining for shares?
How much would I end up after 10 years or 20 years, if I make the full contribution?
What happens if the market crashes in one year, how would this affect my overall returns?
And much more.
The post below will try to answer all these questions and more by providing accurate analysis, with tables and charts.
P.S. Please remember these results excludes fees.
Focusing on investing in Stock and Shares in Lifetime ISA
The FTSE 100 has an average return of 6.52%, since inception in 1984.
That is a rise from 1,000 points to the current level of 7,564 points (as of 02/06/2017).
I know there is no guarantee this will continue in the future. But, let assume that it does.
10 Year Period
Using a ten-year timeframe and assuming the FTSE 100 will deliver a consistent 6.52% return. How much would your saving pot be worth?
Your initial costs are £40,000 (£4,000 X 10), but the capital gains and government contribution would have added an extra £27,551.2 to your initial contribution.
This gives you a total return of…
