Re: Compounding
his first example showed the 20 year old who saved for 10 years ending up with less at 60 than the guy who started at 30 and saved for 30 years, whilst his second example showed the reverse.
I wouldn't agree. I only gave one example. Andy put some figures on it that left person A with less (6% growth, 1% AMC), I put some figures on it that left person A with more (7% growth, 0% AMC).
As I read it the difference of 1 or 2 % made a big difference.
To get back to the original question. If someone has no plans to buy a house for a long time. Are they justified in starting some sort of pension to start taking advantage of tax relief and compounding?
Brendan says no. It's better to save that money and purchase the house as quickly as possible.
I see the logic, but there's something about it nagging me.
It seems like you could get into a situation where you have a big mortgage AND you also need to make big pension contributions just to have a reasonable income on retirement.
Lower pension contributions (as a result of starting earlier) means more disposable cash which could be thrown at a mortgage.
It'd be interesting to see if there is a crossover point where the lower pension contributions can be used to compensate for a higher mortgage or to pay of the same mortgage sooner.
I don't know if that crossover point exists, but I think that's the aspect of this that is nagging me.
-Rd