About a year ago, I wrote a post explaining why there is apparently over a 10% chance that my & Mrs FvL’s tax-free ISA accounts top $100m in our lifetime. This took the £330k lifetime ISA savings we’d amassed to date, assumed 1) we never dipped into the pot, 2) that we maintained an above average risk preference, and 3) that the UK tax rules remained unchanged. About one year on, how are we faring?
The last year hasn’t gone very smoothly. Our ISAs performance was about -5%. This knocks a £330k pot by about £16k. This performance was worse than the market average, but not by much. The resource crash and the China/Asian downturn were starkly visible in our ISA portfolio, with BHP Billiton down 31%, BP down 13%, Henderson Asian Dividend UT down 16%, and HSBC down 23%. Pearson, down 37%, certainly didn’t help either. Isolated gainers including iShares Euro High Yield Bonds (+10%), Zoopla (+40%) weren’t numerous enough to compensate.
We both moved the maximum permitted topup into our ISAs, of £15240 each. Even though a £330k pot sounds like a lot, in fact it is small enough that a 5% drop in value is less than the amount we can top it up. As the pot grows, eventually this won’t be true; a £1m pot dropping 5% would fall by £50k, which dwarfs an individual’s annual allowance. But for now, by topping up our ISAs to the maximum allowed we grew the pot.
The net impact of the negative performance and our topups grew our combined ISA pot to about £355k.
What else happened last year? George Osborne changed the rules. A key assumption I’ve been making is that the rules remained unchanged; this didn’t happen. However, George changed the rules in our favour – from next tax year the maximum topup becomes £20k each. That’s £40k per couple. Fantastic news for those of us with significant unsheltered savings.
When I plug this newly enlarged savings allowance into the Flexible Retirement Planner, starting with my £355k pot and having one fewer year to play with, it says the median value my portfolio could reach is now £30m. And I have a 10% chance of it reaching £86m – almost $150m.
This is before inflation, which reminds me… One other thing has happened in the last year. Inflation has nudged up a bit. It’s now 0.3%.To be fair I have a feeling it was some number like this last year, but I glibly treated it as zero. I’m going to stay glib for one more year but make the mental note that I should really plug even this low positive number into the planner. If you want to see what impact this makes then head to www.flexibleretirementplanner.com where you can play with the tool yourself.
Of course at £20k per year, a (trustafarian) 18 year old who saved for 50 years into a non-interest earning cash ISA would save £1m just in time to retire – so the ISA millionaire moniker is easier to achieve than it used to be. All the more reason to aim for it if you can.
In fact George went even further, with the announcement of the pension-threatening Lifetime ISA. For the moment this doesn’t alter the opportunity to use normal ISAs and for that I give thanks.
So, with over 2% of the journey now completed, we’re on track with our ISA objectives and still crossing our fingers to amass a $100m tax-free savings pot. £20k at a time..