According to a study conducted by the Institute of Fiscal Studies, almost 50% of couples born in the 40s, have better income now than their working days. Their past living standards have been maintained or even exceeded, thanks to their higher income after retirement.
The research conducted by the IFCS had a close look at the wealth and income of couples today with their average earnings between the age of 20 to 50 years old. The study revealed that 80% of pensioners who were born in the 1940s still enjoyed a standard income at the age of 65 through private and state pensions. This income equaled to two-thirds of the earnings during their working days. As much as 40% among them enjoyed incomes greater than their average earnings during their working days.
How these calculations were made?
You must be wondering why two-thirds of their earlier income is considered better. Economists have taken many factors into consideration before calculating the living standards after retirement. Pensioners usually do not have to support their children, they would have paid off mortgages and do not have to save more for contributing to their pensions.
Those who have bought their homes in the 1970s-1980s made huge gains, as housing wealth is included in the equation. Pensioners with their own houses are awash with money and IFS says the average surplus wealth enjoyed by the pensioners is £220,000.
IFS also reports that 92% of pensioners born in the 1940s have saved more wealth than what the model suggests. Even if housing wealth is excluded, 75% of pensioners have more wealth than shown in the model.
These figures and information are likely to spark more debate about the generation inequality between retired households and today’s working people. Pensioners have enjoyed the “triple lock” system, a state pension scheme. This is a scheme in which the state government will hike pensions every year by a minimum of 2.5%, sometimes more depending on the inflation levels and average earnings.
No more generous benefits now
Most retiring pensioners today have enjoyed two things – employer pension schemes and ‘final salary’ or settlement benefits. Today’s workers are offered less generous or ‘defined contribution’ pension schemes. As a result employers tend to pay lesser which are mostly dependent on stock market returns. The alarming rise of house prices defines a tough modern life.
Modern day workers may also have to save huge deposits for paying homes and taking mortgages, which is far greater than generations before.
What today’s young people need to know?
The piece of information revealed by the IFS is definitely an eye opener for today’s young people both in colleges and workplaces. The study essentially highlights the importance of saving your money, clearing mortgages early and spending carefully.
As a young adult, you must take control of your own financial future. Keep an account of your spending and know exactly where your money is going. Find different ways to reduce your spending. Start your emergency saving today. Get a grip on the different taxes and do not forget to guard your health with insurance. Warren Buffet’s teachings are sure to help your life.