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Thursday, July 18, 2013

30-year-olds are all doomed, dooooomed I tell you!

The average 30 year old British worker is doomed. Doomed to scrape a meagre living while in their 30s, their so-called 'prime of life', or else doomed to a penurious retirement,  living off Salvation Army means and one lump of coal a day to heat our huts. 

As house prices accelerate 60% faster than the incomes of those who own them, according to Office for National Statistics data, those who are blessed to already be property owners may be thanking their heavenly benefactors that they have at least been able to get on the property ladder, in the hope that this pile of bricks and mortar could provide some income or capital gain in retirement, when the mortgage is paid off. 

That is, assuming that they do not become redundant, or be out of work for longer than their insurance will cover them, or they discover they are exceptionally fertile and do a Dionne Family. Trust a Canadian to name-check something that happened in Montreal in the 1950s. Oh well. 

So assuming the house remains without need of significant or costly repair, those who own their own property still, the rule-of-thumb dictates, have at least six months' salary saved up in case the worst happens. What about Generation Rent? Figures released recently by LSL Property Services cite that the average rental income in London alone is £1120 - higher than a current mortgage on a five-bedroom property in the  'Urbs - and set to rise further.

Even so, the 30 somethings are expected to save at least six months' salary in ready money.

And here is where the doom comes in. I do not see how, given the rising rental prices, the average UK worker in their 30s can, on the gross average UK salary of £26,000, save just over £12,000 (six months' salary gross of any tax). 

Add to this the need to save for their retirement - which could be up to 30 years after the State Retirement Age of 67, given the rising longevity rates - and the doom of this generation is apparent.

Nigel Green, chief executive of the deVere Group, said thirty-somethings should be putting aside £824 a month, if they desire to retire 65 with the recommended level of pension income. 

According to Mr Green, the calculations are based on the average salary UK’s of £26,500, the assumption of retiring at the default retirement age with a pension income of 75 per cent of pre-retirement earnings, no current savings, yearly inflation of 3 per cent, pre-retirement investment returns of 5 per cent, and any returns after retirement of just 3 per cent on their investments.

Now I have always believed in the virtue of saving. Whether it is as simple as me emptying my purse of all small loose change every night into a jar, bagging it and paying it into a savings account, paying into my employer's pension scheme, doing additional freelance work and using the proceeds to boost my small ISA, the value of saving as much as possible is inestimable.

Whether people like me in their 30s can afford to set aside £850 a month for a pension as well as accrue six months' cushion is another matter. If one can try to save 10 per cent of your money each month, in a mixture of employer pensions and Isas, this soon becomes a good savings habit and it will help in the harder times of unemployment, illness, retirement - and quintuplets.

Without any form of saving, no matter how small, it is true that all of us 30-somethings are financially doomed. We need to wake up and smell the coffee, but not expensive coffee-shop beverages. Take a jar to work and make your own and save £3 every day.