Theodore Roosevelt is quoted as saying that Comparison is the Thief of Joy. Comparing ourselves to others is often an unpleasant pursuit. There will always be someone faster, smarter, richer and better looking. That’s life and we must deal with it. However we’re a fickle bunch and figuring out where we are against our peers is all part of the fun, right?
In certain instances, the comparison is a good thing, a benchmark if you will. And while we’re smart enough not to let such comparison cloud our judgement, knowing we’re on the right path and such positive reinforcement is awesome at any stage of your financial independence journey.
Have you ever considered how much you should have saved by a certain age?
One of the regrets of those approaching early retirement or already retired is that they did not save enough for their later years. For many transitioning from employment to retirement, this comes with the biggest pay cut in their career. Thankfully with planning and action, this is something that can be avoided.
If you’re new to saving or you have fallen behind, don’t get discouraged. With a little bit of effort and refocus, you can always get back on track.
Save Save Save
To those focused on Financial Independence, saving money is second nature. The understanding that delayed gratification is not just good, but a great activity, ensures that this act isn’t perceived as a negative. It can then be maintained over the length of time it takes to fully achieve financial independence.
Saving money for a rainy day is one thing we actively encourage, but beyond that, what opportunities are there to put your savings to good use?
- Achieving Financial Independence and having the option of Retiring Early if you want to.
- Starting a business that generates profits to reinvest in the business or other income-generating assets.
- Investing in income generating assets that you buy once and they pay you forever such as: Rental Property Income, Index Funds. Over time these will compound to give you exponentially greater returns.
For many of those reading this post, we must also understand that we are the outliers. Our savings rates and amounts should automatically put us ahead of our peers. Don’t be tempted to take your foot off the pedal. Look forward, celebrate your success and stay the course.
Financial advisors commonly recommend you save 15-20% for retirement. As you see below, the average household isn’t coming close to that.
United Kingdom Household Saving Ratio 2019-2021
Pre-pandemic, the Household Saving Rate in the UK was on a significant decline and was expected to drop further. Conversely, during the early stages of the pandemic, household savings increased dramatically reaching a record 27.4% in Quarter 2 (Apr to June) 2020.
The obvious reason for this is that our ability to spend money suffered through multiple lockdowns. This could be significantly higher, if it wasn’t for home delivery! If anyone needs me I’ll be in my inflatable hot tub in the garden room / home office.
More recently Household Saving Rate in the United Kingdom decreased to to 6.8% in Quarter 4 2021, compared with 7.5% in Quarter 3 2021. The savings rate again is on a downward trend and this will be a result of many factors including the current inflation rate and the cost of living increases we are facing at this time.
While many of the business owners we work with are in an incredibly busy period currently, the pressures of spiralling costs are mounting.
The households’ saving ratio explained
The saving ratio estimates the amount of money households have available to save as a percentage of their gross disposable income.
What this illustrates to us, is that as a nation we probably aren’t saving enough to have a decent retirement 50 years from now, never mind a comfortable early retirement.
Pensions are excluded from this figure and as such it does give a tinted view of the financial wealth of households, but looking at that data also, it’s not a much better picture for the majority.
Average Household Savings By Age - UK
Firstly let us acknowledge that just under 10% of the UK adult population have no savings at all. This will skew the average lower. It’s worrisome as these households have no emergency pot of savings to draw from if a need arises. They may find themselves in debt in an emergency situation.
A typical household in the UK saves £2,160 per year. This is the median amount saved annually, so 50% of households saved more and 50% of households saved less than this. The average household saving per year is £5,403 and this is skewed up 2x due to a small proportion of households who save significantly more.
Saving would include things like current and savings accounts, ISAs, stock, bonds, trusts, etc. Pensions, property wealth and personal possessions would not be considered within these figures. We would expect the total wealth would be somewhat higher as a prudent move is to load up your pension throughout your working life.
|Household savings by age||Average net savings||Median net savings|
|20 to 24||£2,600||£200|
|25 to 29||£3,800||-£100|
|30 to 34||£14,500||£1,000|
|35 to 39||£28,400||£2,800|
|40 to 44||£76,100||£5,000|
|45 to 49||£50,100||£5,300|
|50 to 54||£59,700||£5,100|
|55 to 59||£81,700||£10,600|
|60 to 64||£116,900||£22,500|
Factors that affect average savings
Looking at the data it becomes clear that many will be terribly unprepared for their retirement through savings alone. They are either spending too large a percentage of their income or not earning enough. Saving rates are undoubtedly linked to many other factors at a macro level. Inflation, interest rates and market trends will impact how much an individual, household and nation saves.
One major factor for many entrepreneurs is apathy around retirement planning. I work with and know many incredible business owners earning hundreds of thousands per year. They spend almost everything they earn and consider their business their retirement pot.
There’s a certain bullish thought process that money can always be made, and I agree with them. Well, until such time that it can’t. I am the weird one, for I delayed some, but not all gratification, to invest in our future. One less holiday a year, when you’re on the 3rd ski trip of the season is not a disaster.
The reality is, that for those who do not plan, save and invest throughout the accumulation stages of their career are gambling with their future wealth. No matter what your age, if you have no defined plan for retirement I urge you to consider creating one.
It doesn’t need to be a lifestyle altering amount, but failure to do so will considerably alter your lifestyle in retirement.
Quick ways to increase your savings
Pay Yourself First – Saving before you spend is the ultimate power move to increase your savings rate.
As soon as your salary or dividends hit your account, the wise immediately transfer this to their savings or investment account. This automation of the saving process puts the sum beyond immediate reach, leaving the remaining sum to be spent accordingly.
Set a budget – Knowing where our money goes is the first step to managing it. It would be fair to say that many underestimate what they spend and we all have vampire subscriptions we’ve forgotten about that suck the life from our bank balance. With a clear understanding of your income and expenditure we can look to trim the fat.
How much should you save each month?
To give a clear picture of this, we need to start with the end in mind. “How much do I need to retire?” will be a huge part of this site and we’ll deep dive into that in another post.
However, many financial planners suggest a minimum of 15-20% saved for retirement each month. We discuss why the more you save now, the less you need to later and the benefits of compound interest work in your favour, the earlier you start saving for retirement.
The amount of money you save will be unique to your circumstances and as we know, savings is only one measure of a household’s wealth.
There is no one size fits all method to saving more and there is no magical answer that I can confidently say will work for everyone. However, there are some common budgeting frameworks by which you can set and forget to grow your savings.
A popular budgeting technique is the 50/30/20 Monthly budget where you allocate 20% to savings automatically each month. 30% goes towards your discretionary spend and 50% contributes to your actual needs. This is a simple yet powerful method for managing your budget and savings rate.
Go get em!
Whatever path you choose to manage your saving, you should definitely keep track of your finance and understanding how much you should be saving is key to this. You’re never too late to save, but the earlier you start, the quicker you’ll reach financial freedom. Good luck on your journey.
FAQs - Average Savings Rates in the UK By Age
If you’re reading this blog, you’re not average. Of course, acknowledge these average saving rates and understand them, but commit to forget them immediately and read the above!
The average savings per household in the UK at age 20-24 is £2,600. The median (typical household) at age 20 has £200 saved.
The average savings per household in the UK at age 30-34 is £14,500. The median (typical household) at age 30 has £1,000 saved.
The average savings per household in the UK at age 40-44 is £76,100. The median (typical household) at age 40 has £5,000 saved.
The average savings per household in the UK at age 50-54 is £50,100. The median (typical household) at age 50 has £5,100 saved.
The average savings per household in the UK at age 60-64 is £116,900. The median (typical household) at age 60 has £22,500 saved.
The average savings per household in the UK at retirement age (65+) is £113,600. The median (typical household) at retirement age has £25,700 saved.