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Ever considered how much you should have saved by age?
We recently gathered thoughts from our community and asked what advice they would give their 20-year-old selves.
The most popular advice from hundreds of people was that they would have taken control of their finances earlier.
The second most popular piece of advice was that people would have saved more money earlier.
A number expressed regret for having splashed out on stuff growing up and would much rather have saved.
I am totally guilty of this too and really chose to live life in the moment in my early 20s 😅.
Saving money seems like a no-brainer to most people in retrospect, whilst spending money seems a heck of a lot more attractive in the present.
The thing I find really interesting about saving money is the opportunities it could open.
A lot of people who save tend to save money for a rainy day, which is a good thing in itself.
However, saving is really a vehicle for much more upside potential:
- Plotting your escape and working towards Financial Freedom or the option of Early Retirement.
- Investing in assets that work for you. If you have a long-term view, compounding will fascinate you.
- Starting a business or side hustle and generating profits you can reinvest in other asset classes for cash flow.
- Taking time out as an adult to travel around the world as you might always have wanted to.
- Helping others in need and teaching them what has worked for you so far.
Having said all this, the trend towards saving money is massively on the decline in the US, UK, Canada etc.
According to the recent Office for National Statistics research, the estimated UK household savings rate was 6.5% in January 2022 and is forecast to decline further as the cost of living rises due to inflation.
*Savings ratio estimates the amount of money households have available to be saved as a percentage of their total disposable income
6.5% is only a fraction of what people need to be saving in order to build up a decent retirement pot one day.
There is clearly an issue with people either spending too much and therefore not saving enough, or just not earning enough of an income.
Or perhaps people just don’t have sufficient foresight about their future even though the signs of what is to come are all around us today.
For example, we're all living for longer on average and will have a greater need for the money we save to sustain us into a more distant future 😏.
Then ofcourse, there's living life in the present, which has many challenges with many things competing for our attention and money.
Let me paint you a picture of how life could play out if you don’t start taking drastic action today:
Age 20 – “I’m young and doing my thing. I just want to have fun. I have loads of time. 65? That’s light years away.”
Age 30 – “I am in a relationship. Ah man, I have big car payments monthly plus I like travelling and enjoy nights out on the weekends. I will get started later”
Age 35 – “Save? We have had our first child! Nappies, baby food, blah blah blah..Have you seen how expensive childcare is?”
Age 40 – “Gush we’ve got two kids! Yikes! We haven’t been on holidays for 3 years and our second car is worn out and needs replacing. We’ll start next year”
Age 50 – “We’ve started paying for university fees and our credit cards are maxed out. We keep worrying about how to prepare for retirement but just can’t find the room in our budget to do anything about it now. Feels too late. Why is life so crap? I wonder how Ben and Lucy seem to manage it all.”
Age 60 – “Where did time go? Darnit, wish I had planned my life well. All I have to look forward to is the state pension of £185.15/week if I am lucky. Looks like I will never be able to retire. Plus I no longer have the strength I had. Wish I took more risk.”
Age 70 – “My children are making the same mistakes as me. Oh my! Am I a failure? I will teach this stuff and make sure I stop them becoming poor too before it is too late and my grandchildren also get affected.
The above is the sad reality for many people today. What story do you want to tell one day?
If you’re reading this and currently coasting through your life with no defined plan for the future, then I urge you to drastically rethink your path.
Especially if you’re living through the crucial wealth accumulation stages of life.
The best time to begin saving was yesterday, however, where you’re is the only place to start from and now is the only time you have to grow your money.
And let’s not forget, working for money and retiring at 65 is not the dream. It is the old way of doing life.
If you really want to have flexibility, enjoy your life, travel, spend more time with your family, pursue passion projects etc, then you must take control of your finances.
Given you have to manoeuvre through the various life milestones above, assuming you started saving today, at what rate should you save at based on your age? And how much should you have saved?
Table of Contents
HOW MUCH MONEY YOU SHOULD HAVE SAVED BY AGE
There are a number of approaches and guidelines for figuring this out.
1. Multiple of Salary
Fidelity recently conducted some research and suggest that you should have 50% of your annual salary in accumulated savings by age 30.
For example, if you're 30 now and earning £40k per annum, then you should already have £20k in savings at this age.
This would require saving 15% of your gross salary beginning at age 25 and investing at least 50% in equities.
That's because, at such a young age, you typically have a long term horizon (>20 years) to invest your money.
As such, realistically your asset allocation should be high in equities and low in bonds.
Other suggested savings benchmarks are as follows:
The above is a simplistic illustration and makes a number of assumptions such as lifestyle and income remaining fixed.
However, you hopefully get the point, which is that you should start early, stay consistent and ramp up as time passes.
2. Other Multiple
Another piece of research similar to Fidelity suggests that you should be saving 25% of your gross salary starting in your 20s.
This figure includes all savings in your tax accounts (e.g. ISA and SIPP) as well as employer contributions.
Following this savings rate should allow you to have accumulated the equivalent of your annual salary in savings by the age of 30.
Continuing this savings rate should lead to the following savings goals:
35 – two x gross salary
40 – three x gross salary
45 – four x gross salary
50 – five x gross salary
55 – six x gross salary
60 – seven x gross salary
65 – eight x gross salary
Now here's the thing, not everyone has the opportunity to begin or have saved in their 20s and continue saving into their 60s.
All kinds of things can happen.
E.g. a Pandemic could deplete your savings.
Or one could immigrate and start from zero (just like I did), have a long-term illness or have a change of fortunes, etc
But these should not stop you. Instead, they should act as motivation for you to set goals, think long-term, and run your race well.
3. The 4% Rule
To determine how much you'll need in retirement, take your desired annual income and divide it by 4%.
4% represents a Safe Withdrawal Rate (SWR) from your freedom fund or portfolio.
For example, if your desired annual income at retirement is £50k, then dividing this by 4% gives you a pot of £1.25m.
Another way to look at this is that you have assumed that your total expenses in a year are £50k.
Therefore, multiplying this by 25 gives you £1.25m i.e. you have 25 years' worth of expenses.
If this pot of money were invested and returning, say, a 6% compounded return net of inflation, then with a SWR of 4% per annum, you should theoretically never run out of money.
There is an inverse relationship between your savings rate and your retirement age. The higher your savings rate, the younger you'll retire and enjoy freedom.
If you think about this, cutting your spending rate (and increasing your savings rate) is much more powerful than increasing your income.
This is because every permanent drop in your spending has a powerful double effect:
- It increases the amount of money you have leftover to save (and invest) each month.
- It permanently decreases the amount you will need every month for the rest of your life.
Achieving a permanent drop in your monthly spending requires a lot of discipline and a lifestyle shift.
But it is totally worth it because every £1 you save permanently equates to £25 you won’t need to save for your retirement.
Note: 4% is really a maximum. Anything between 3% and 4% would be more realistic. At a 3% SWR, you'd need a pot of £1.67m.
In summary, saving money can be tough, but it is entirely necessary and possible because what you spend is under your control.
It is easy to point to the many things you have to pay for and justify why you haven't saved.
I'd challenge you and say that all those things you have to pay for come down to choices you have made.
The most important thing you can do today is to create a well-defined plan that is unique to your future goals.
Then do everything possible to optimise your life and increase your savings rate, and keep it consistent.
If you're struggling to do this, reach out to someone you know who is better at managing money or feel free to contact me.
Your income is also another lever for improving your savings rate and is never ever fixed.
Given there is opportunity all around us, don't subscribe to the doom and gloom around us but instead explore your creativity and skills and seek out opportunities to grow your money.
When you combine earning more money with saving money, you're onto a win-win situation. You can do this! 😀
What To Read Next On Making Money:
- 7 Guaranteed Ways To Make An Extra £1,000 A Month
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- Turn Your Specialised Knowledge Into Multiple Streams of Income
What was your biggest takeaway from this post on how much you should have saved by age? What has been your biggest challenge with saving money? Comment below and share with us
Do please share this post if you found it useful, and remember, in all things be thankful and Seek Joy.
Hi Ken, I just came across your blog today. Very interesting post. If I could have started saving early enough compounding interest would have really worked in my favour.
The Humble Penny says
Pleased to hear it. It is never too late to start. I’d recommend you get started today and focus on the future. You do need a plan though to ensure you stay focused.
Good I am glad to read here to keep learning about improve of matter saving money for future
This is a really fascinating post! WOW! The biggest struggle I have had with saving money is traveling! I love it so much and want to enjoy life… but I end up regretting spending so much each time.
I am also terrible at budgeting and don’t have the patience for it :(. The picture you painted above for how things could turn out is abit scary and I feel I am on that path already. Where would you suggest I start?
The Humble Penny says
Holidays and the like are great but should be done as part of a strict budget.
I’d suggest you start by setting some key goals around areas of saving money. You need some kind of motivation to shift the focus away from spending. I’d also suggest having someone help you with accountability. For most people, this is a partner… Check out posts in the Budgeting section for example. One called “How to create budget that works for you” could be useful.
The budget acts as a control and once you start to make it a priority, you’ll see changes in a few weeks.
This was a good read! I like how you address the common attitudes through the decades and how it can easily be put off until its too late.
The Humble Penny says
Those attitudes usually arise because we typically follow others and live their dreams. It takes years for the penny to drop for many and then it’s too late.
Even those that know they should be saving for today end up subscribing for YOLO (You Only Live Once) and as such stay ignorant and do nothing.
Humans are predictably irrational. It’s research backed. Having the right people around certainly helps to make the right decisions as the precious years pass by. Parents especially have a huge responsibility in this area.
Thanks for sharing! It is amazing how much multiples over time. It should be an important priority!
The Humble Penny says
Vanessa, a HUGE priority. Unfortunately, human beings are predictably irrational…
So however sensible it might sounds to save for tomorrow, there will always be a large group that don’t for one reason or another.
They should really just show young workers a compound interest calculator. I showed this to a 24 year old at work. His response? Why the hell didn’t they show me this instead of banging on about pensions!
The Humble Penny says
He should be thanking you BIG TIME. If he pays attention and avoids the view of the masses, he’ll do well.
Feel free to pass on this post too:
I guess the income multiples assume a traditional retirement age of 65. My wife and I have been careful for a number of years to ensure we have the option of retiring early if we choose. At 48 we have about 8 times income in pensions and equity in a couple of properties of about 7 times our income. We know that if we sold one of the properties we could probably stop working, although our kids still school age and university costs loom on the horizon. We’ll probably stop working at 55 by which time the 4% withdrawal rate will give us more than we need. At least having those assets tucked away gives a different perspective on work and I recently changed job to one I really fancied doing rather than being chained to one I hated.
Ken Okoroafor says
You’re living the dream! Family man and with a strong financial position. I’m a big advocate of creating those options. Good to hear about your motivations for moving jobs. By the way, I’m curious as to what path you took re the mortgage on your primary home. Did you payoff? Or was that not a focus for you?
We haven’t paid off the mortgage on our main home as it is a lifetime tracker at base rate plus 0.25%. Given the choice of paying the maximum £40k pa into a pension and getting 40% tax relief or paying off a chunk of mortgage at such a low interest rate, the pension wins every time. What we have done though is overpay by a couple of hundred pounds a month over many years and we carry an emergency fund of about 6 months expenses in an offset account. The mortgage is currently around 1.5x annual income and around 20% of the value of our home. If I stopped working at 55 there would still be some mortgage balance left but the plan at that stage would be to downsize so we would clear it from proceeds.
Ken Okoroafor says
Sounds like a solid plan especially with that much equity in your home.
Hi – Thank you for all the above, it is very insightful and should be taught at school. I just turned 36 and due to so many factors (one of them being clueless in my 20’s), I have been unable to save, as an immigrant supporting family and building a house back home for far too many years. Only at the beginning of this year (2019) I have been able to start saving £1000 a month but half of it is towards savings for a mortgage in London. What advise can you offer as I’m clearly way off here and I’m so worried about my pension.
The Humble Penny says
“building a house back home for far too many years” is a very common cultural problem. May I ask – Will you ever live in that house for more than a month at a go? I have seen many people build such houses and never live in them. In many cases, they actually borrow money to build… so a wasting asset and debt too. Worst still, they are never let out and remain empty trophy homes.
Anyway, back to your question, it is not uncommon to waste away your 20s. I pretty much wasted half of mine. What I would ask you is – Do you really need to buy a house? or can you rent more cheaply instead? Do the analysis for your personal circumstances. In some cases, it makes more sense to rent… Although this will likely differ if you want a permanent home for a growing family.
For your £1000 p/m, I’d highly recommend not just leaving it in a bank account if your horizon is long. A broad based index fund with a reasonable allocation to equities is something to consider.
Read these two case studies for what to do with your savings and how to potentially double your income:
I’m just starting to work through your posts more generally, but I have a question about what you “count” towards these totals.
I have a mortgage on my home, towards which I’m paying £850 pcm (the fixed payment), plus an extra £750 pcm. At this rate, I shall have paid it off in three more years.
To what extent do I count the equity in the property towards my “total saved” figure?
Obviously, I’ll always need a home, but I’m single, childless and live in London, so a three-bedroom London flat won’t be a necessity once I retire at 55, on 31/12/2020. (I’ll actually use a portion of my tax-free pension cash to pay off the remaining part of the mortgage at that time.)
I have £200k in shares in ISAs, plus emergency funds and sums set aside in separate savings accounts for Christmas, birthdays, annual expenses and holidays.
I’ve never counted those monthly savings as anything other than accruals, since I know that I’ll spend them.
I have three final salary pensions across my career (still contributing to the current one at maximum permissible rate). Do I count my pension contributions as part of my monthly “savings percentage?
Many thanks in advance for your thoughts.
The Humble Penny says
Thanks for stopping by.
The equity in your home counts towards your net worth and saved amount. And overpaying on your mortgage does count towards your savings rate because you are basically taking the returns that come from paying off the debt on your mortgage (i.e. interest saved). But the returns that come from paying off your mortgage go beyond the numbers as it can liberate one to take more risks in his/her life.
Related post here: https://thehumblepenny.com/how-to-pay-off-your-mortgage-early
Your home can also be sold as you downsize and convert some of that illiquid equity into actual cash.
Your £200k counts and so do your pensions (if you have access to them or if they are guaranteed).
One exercise I’d highly recommend is to simply calculate your financial net worth. Here is a link to guide you:
It is the sum of all your assets less all liabilities.
Then compare that networth to your annual expenses. e.g. if your net worth is £600k and your annual expenses are £24k, then you have savings for about 25 years (£600k/24k). This is just a rough calc as all your assets will have varying levels of liquidity.
However, as you become mortgage free and have access to your pension income, your options increase as you can then easily choose which assets you want to make more liquid or not in order to sustain your lifestyle, etc.
All in all, you seem to be in an excellent place financially. Many dream of final salary pensions 🙂
Just came across this today and am so worried about my future. As someome who has been im education for so long, just finished my PhD this Jan 2022, i feel like a total lost. I have started saving habit now small small🤗 but as you pointed above just saving in your bank account does not help.
My question is what are some of the tips to invest and not just have money in your account? I am 35, with 2 little kids, an immigrant and starting all over again in UK
The Humble Penny says
Hi Grace, I hear you completely and a lot of people will be able to relate to where you are now. Stay encouraged though because things can improve pretty quickly if you’re disciplined about increasing your Savings Rate and starting to invest consistently. Here are some resources to help you 🙂
Read this blog post for how to invest:
Read this one on various funds to consider investing in:
Check out our beginner investing course:
The Humble Penny says
Thank you and I understand where you are at this stage of your journey. You still have time to get started with investing :). In terms of what to invest in, please check out this detailed post:
I’d also suggest checking out our Investing Course for beginners here: https://thehumblepenny.com/super-simple-investing/
Thanks for this insight! My husband owns his own carpet cleaning service and we’ve been saving for years, but we recognise it’s not just about saving. We’ve been talking about investments for a long time now but it’s always put behind as life goes on. I think we’re serious about it now and coming across your blog has brought up a lot of valuable points to consider.
The Humble Penny says
Hi Janae, thank you! Investing is important and you won’t be alone in having put this aside as life goes along. Thank you for reading. Learn more about investing here: https://thehumblepenny.com/category/investing/