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Is this a reasonable use of compound interest? What did I miss?

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Sailtheworld Posts: 1,551 Forumite

11 March 2021 at 3:54PM

I'd model this in a spreadsheet and then update it every year.

I'd ignore inflation (your yearly update will take care of this). It makes the spreadsheet easier to comprehend, it's easier to sense check (to prevent you inflating withdrawals and not spotting you should therefore do the same to contributions), and it's one less number you need to guess at and get wrong.

You need to make an assumption about real investment returns. It's not entirely under your control so just go with something that's reasonable, take it from there and adjust later if you think appropriate. A 5% real return seems like a decent enough starting point to me.

Your savings rate and investment choice are, however, under your control. Once you've decide where to invest (which again you can change later) it just leaves savings rate and that's what I'd focus on. If you're investing the maximum you're happy with there's not much more you can do and returns will be what they'll be.

Most important thing to do is get started.

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Is this a reasonable use of compound interest? What did I miss?

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