In the 45-55 age bracket, the average savings is £11,013.99. About 6.34% in this age group have nothing saved at all. However, is this a good amount to have tucked away? Should this include your pension, or just money held in a regular savings account or cash ISA?
In this guide, our team at Vesta Wealth shows some of the key statistics about UK savings in later life. As financial planners in Cumbria, Teesside and the wider North of England, we also highlight how these figures play out across different regions. Finally, we offer ideas about how much you should have saved as you approach retirement.
What is the average savings by age group (UK)?
It is important to separate savings from pensions. The former include ISAs, general investment accounts and regular savings accounts (i.e. funds that can be accessed before age 55). The latter typically comprises your workplace pension(s) and possibly private pensions that you may have built up on your own.
Your State Pension can be thought of as a separate category since this does not involve a pension “pot” as such. Rather, it is an income that you receive from the government once you reach State Pension age, based on your National Insurance (NI) record.
Savings, therefore, are not typically used to fund a retirement lifestyle. Instead, they are usually reserved for a “rainy day” or a one-off expensive cost – such as a mortgage deposit, a new car, a home extension, a major repair (e.g. roof maintenance) or a wedding. How much do over-50s have set aside for these kinds of purchases?
The figures vary widely by region. London, unsurprisingly, has the highest average savings at £28,978.40. This is much higher than the West Midlands in second place, at £13,318.35. The lowest average is in Northern Ireland (£6,710). In the North West – our region – the average is £9,156.79. Here, 8.20% have nothing in savings; 16.39% have under £100 standing by and 35.25% have £1,000 or less in the bank.
Overall in the UK, average savings go up with age. The 18-24 age group, for instance, only has £2,481.16 saved, on average, whilst over-55s have £20,028.60. There are also differences between genders with men saving £13,140.61 on average and women £6,869.84.
How much should I have saved by 50 (UK)?
As a general rule, saving 3-6 months’ worth of living costs in an easy-access savings account is a good starting point. A family of 4 might spend £4,000 or more per month whilst a single person is likely to spend much less. For 6 months, therefore, you may need between £15,000-£24,000 as an “emergency” buffer. However, depending on your lifestyle and needs, you may need far less or more. By age 50, your children (assuming you have them) may be approaching 18 and able to live independently. This might take some pressure off your monthly finances. However, by this point you may be used to a higher quality lifestyle compared to when you were a young parent. Downsizing to reduce your expenses after the children move out, for instance, may be a tough pill to swallow.
A financial planner can help you discern how much you need saved by your 50th birthday based on your needs and goals. They can also advise on the best “vehicle” to use (e.g. an ISA or other account type). With this said, bear two important things in mind when building up your savings. Firstly, avoid putting too much wealth into cash. Interest rates in 2022 are better than in recent years (e.g. 1.81% easy access), but these still come nowhere near the rate of inflation – which currently stands at 9.4%. As such, cash savings will lose value, in real terms, over time. Once you have a strong emergency reserve, therefore, consider building wealth in other assets that have a better chance of beating inflation.
Secondly, make sure you build up any cash savings in a tax-efficient manner. In 2022-23, you can earn up to £1,000 interest each financial year without tax under your Personal Savings Allowance (or £500 if you are a Higher Rate taxpayer). For someone on the Basic Rate, this means you would only start paying tax on your interest once your cash savings exceed about £55,000 (based on a 1.81% interest rate). Most people are unlikely to need this much to cover 3-6 months of living costs. As such, you are unlikely to need to put cash savings into an ISA to minimise tax on your cash reserve. Instead, consider using your £20,000 annual ISA allowance to build up other investments – e.g. equities and bonds – which have the potential to make higher returns and which can generate dividends and capital gains without tax.
Invitation
If you would like to discuss your financial plan and retirement strategy, then we would love to hear from you. Get in touch with your Financial Planner here at Vesta Wealth in Cumbria, Teesside and across the North of England.
Reach us via:
t: 01228 210 137
e: [email protected]
This content is for information purposes only. It should not be taken as financial or investment advice. To receive personalised, regulated financial advice regarding your affairs please consult your Financial Planner here at Vesta Wealth in Cumbria, Teesside and across the North of England.