Do you want to be a pension millionaire?

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Do you dream of being a millionaire retiree? Would a million-pound portfolio enable you to live the lifestyle you desire? Perhaps you'd spend your summers in Europe? Play more golf? Enjoy more time with the grandchildren? If you start planning early, building a seven-figure pension pot is very achievable. Let's make it happen. Here's five key tips to put you on the path to millionaire status.

Start early

I know this tip gets repeated a lot, but it really is important when it comes to building long-term wealth.

Consider this example: assume you can earn 10% per year on your investments and you want to retire at 65. If you start a pension at 40, you'd have to contribute around £765 per month to achieve millionaire status by 65. However, if you start at 25, the amount required per month drops significantly, to just £170.

That's a staggering difference. It's all due to the power of compounding. The longer your money compounds for, the greater the potential for powerful wealth.

Take advantage of tax relief

There's not many 'free lunches' in the world of investing, however, pension tax relief from the government is one, in my view.

At present, UK basic rate taxpayers currently receive 20% tax relief on pension contributions. That means if you contribute £100 to your pension, it will only cost you £80. That's essentially a risk-free 25% return on your money. Similarly, if you're self-employed, you can claim a tax deduction for contributions into a SIPP.

If you can afford to make extra pension contributions, these tax perks are definitely worth taking advantage of.

Ask about employer matching

It's also worth finding out if your employer will match contributions.

While every employer now needs to make pension contributions for those earning over £10,000, some employers will pay more in, if you agree to contribute more.

Again, that's potentially free money. If you're not taking advantage of such arrangements, you're essentially leaving money on the table. If you can afford to put a little bit more into your pension now, instead of taking the salary, the rewards in the long-run could be powerful.

Invest in growth assets

Next, take the time to find out how your pension is actually invested. So often, investors have absolutely no idea. If you've never spent time tailoring it to your requirements, the chances are that it's in some kind of 'balanced' plan.

While a balanced plan may be suitable for some individuals, if you have a long time until retirement, a growth strategy may be more suitable. You'll have more time to ride out market fluctuations while a larger exposure to growth investments, such as shares, could propel your returns much higher over the long run.

Keep fees low

Lastly, keep fees to a minimum. These are one of the greatest destroyers of long-term wealth. While a 1-2% fee per year may not sound like much, over a 30-year period, those can run into the hundreds of thousands.

Therefore, don't over trade. Running up high levels of trading commissions will erode your returns. Second, focus on low-cost investments, such as index funds, low-cost investment trusts and direct shares.

Retirement should be something you look forward to. Follow these tips and put yourself on the path to financial freedom.

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