Think you’ve got plenty of time to save for retirement, boost your bank balance or achieve the level of wealth you’ve always aspired to? Think again.
While it might be said that life begins at 40, this is far from the case on the financial front: wage growth stalls 30 years before the average retirement age, according to personal finance website Fool.co.uk.
A poll of 3,321 of its panel members found that average earnings accelerate in the 20s and 30s. A typical 16- to 20-year-old sees their wages increase from 15,000 pounds to 17,500 pounds by the time they reach their mid-20s, then to 25,000 pounds between the ages of 26 and 30. The rate of increase accelerates through the early 30s — to 35,000 pounds between the ages of 31 to 35.
But, average earnings then flatted out — and remain at 35,000 pounds until aged 55. If that doesn’t make painful enough reading, it gets worse: income typically falls to 25,000 pounds from the ages of 56 to 70, then drops to 20,000 for those aged 71-plus.
Women’s earnings reach their potential earlier, but with a whimper rather than a bang. Earnings plateau in the mid-30s, compared to the mid-40s for men, and never reach the peak of 45,000 pounds hit by their male counterparts.
This withering in wages coincides with a stage in life that is typically more dynamic — making income stagnation a double blow. It is around this stage that eight out of 10 people own their own homes, of which a third are family dwellings. Six out of 10 support dependents — including both parents and children.
What makes the findings even more worrying is that people in their 20s and 30s have racked up a sixth of Britain’s total consumer debt in recent times, according to Bank of England figures. It is this uncontrollable spending — and “can’t save, won’t save” mentality — and could spell serious trouble.
Just think – at 40, contributions of more than 2,000 pounds per year are necessary to support an average lifestyle at retirement. Wait until the big 5-0 and that figure soars to almost 6,300 pounds.
But just look at what happens the earlier you start: those who start a pension at aged 30 need only stash away 738 pounds per year to achieve a 200,000 pound pension pot (based on a 10 percent investment return). Nine years earlier — when 21 — that figure falls to 306 pounds. Start pension saving at sweet 16, and annual contributions of 189 pounds could spell a 200,000 pound retirement pot; at aged 13 the figure stands at 141 pounds; and at birth just 30 pounds per year would need to be saved.
That’s a cautionary tale, if ever there was one, for today’s 20- and 30-somethings.
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As a thirteenth century Scottish poet and seer, I’ve come back from the grave to make a couple of predictions. How long will it be before the investment industry admits that we’ve hit a high-water mark in average longevity and that the continued complaint that they must reduce annuity rates because of ageing populations is proven to be false? Further, how long before governments in the developed world declare it illegal for pensions companies to make profits when they are losing money for their policyholders? Witness the 10% fall in most “Lifestyle” (equity/bond mix) funds over the past six months alone. And yet many of these same companies report $100 million plus profits quarterly. As another, later Scottish poet wrote..”the time is near, it’s coming soon/When man shall speak to man/For a’ that.”
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