Workers can expect a salary drop of £400 per year once they turn 50, according to ONS Earnings data analysed by pensions and retirement specialist Friends Life. The majority will see their salary peak between the ages of 40 and 49 to an average of £33,459. The average income falls to £33,059 when they turn 50, and by a further six per cent to £31,052 when they reach 60 which in part could be due to more flexible working in later life.
Friends Life analysed 50-64 years olds’ disposable income once necessary expenses like household bills, living costs including food and drink and transport costs have been accounted for, and found this leaves just £231.53 per week to put away, meaning the decade pre-retirement is when saving potential is lowest. The fall in earning power for this age group coincides with an increase in household spending from an average of £196.40 to £235.80 per person per week, as Britons spend more on leisure activities, alcoholic drinks and purchasing household goods.
Research shows that over 50s account for the highest proportion of total spending on overseas travel, indicating they are spending their free time from flexible working on costly leisure activities. The findings show that the decade pre-retirement is when money is most squeezed, with more people at risk of having debt in their 50s. According to recent Friends Life research, one in four people would consider taking 50 per cent or more of their pension pot as a lump sum at retirement, with one in six planning to use this money to pay off debt.
Colin Williams, Managing Director of Corporate Benefits at Friends Life said: “Our analysis shows that most people will reach their earning peak earlier in their career than they may think. Then they will see a fall during their 50s, just at the point that spending increases and people will be relying on savings for retirement. This highlights how important it is to take action when your saving potential is at its highest during the early part of your working life, particularly to avoid having to use pension savings to pay off any remaining debt. The good news is, the earlier you take action to prepare financially for the future, the more you will do to secure the lifestyle you aspire to during retirement.”
When asked about retirement lifestyle, two in five people expect to spend four times longer on hobbies in later life according to earlier research from Friends Life. However, in retirement costs for our favourite hobbies are expected to soar higher than inflation with for example, cycling expected to cost on average £1,220 per year in 2042, up from an average of £410 in 2014. Having a financial plan in order to afford the lifestyle we aspire to is therefore vital.
To help people counter a fall in earnings and maximise their savings for retirement, Friends Life has produced a number of hints and tips:
Think about savings as a whole
Retirement savings can include more than contributing to a pension. For example, now that the overall ISA limit – the combined amount that you can save into a cash ISA and/or a stocks and shares ISA – is increasing to £15,000 a year (from 1 July 2014), more can be saved into this flexible solution. Individuals should investigate all the options available to them to determine which solutions suit them best.
Consider carefully how much is affordable
People need to think now about what they spend most of their money on, and what they are likely to be spending their money on as they reach retirement age. This will help them to identify whether they have enough stored away or not relative to their income. With the cost of the UK’s top hobbies expected to rise above inflation over the next 28 years, it is even more important that the finer details are considered.
Make sure you’re in
Under auto-enrolment, all employers in the UK need to provide a pension scheme to their eligible employees automatically. Auto-enrolment has started for lots of employers, with the rest required to follow suit by 2018. In the meantime, people in employment can speak to their employer about whether they offer a pension scheme, how they can sign up and what contributions their employer may offer.
Get the full picture
The government is introducing a flat-rate State Pension and getting rid of complicated ‘second pension’ and ‘pension credit’ add-ons. This will make it much easier to put State and private benefits together to get a combined potential income at retirement.
Invest in something that’s right
Most pension schemes offer access to a wide range of different investment options. The range, different levels of risk, charges and other factors can make choosing an option difficult. It may help to speak to an independent financial adviser (charges may apply), or make use of tools offered by providers that can guide people towards investments that may be suitable for their circumstances.
Additional detail – average salary by age band and profession
|Senior Managers and Directors (Business)||£33,500||£56,344||£67,232||£63,565||£51,819|
|Middle and Junior Management||£23,074||£33,386||£39,643||£39,223||£36,230|
|Professionals (Law, Accountancy, medicine etc.)||£29,984||£39,782||£44,934||£44,858||£44,738|
|Science, engineering and technology||£30,829||£41,744||£47,062||£46,980||£43,628|
|Nurses and Healthcare staff||£22,733||£26,899||£27,856||£26,793||£24,934|
|Police, fire brigade and ambulance||£30,786||£35,700||£38,177||£37,538||£27,507|
|Skilled Agricultural Workers||£17,298||£19,905||£21,626||£21,380||£19,269|
|Skilled Construction workers||£23,266||£25,621||£27,927||£28,509||£26,766|
|Industrial and plant operators||£20,868||£24,311||£26,242||£25,214||£22,855|
|Transport – e.g. drivers||£22,140||£25,587||£26,997||£25,705||£23,280|
Data source: ONS Earnings Data 2013