A millionaire by fifty
According to insurer Prudential, the average UK worker will have earned more than £1m but he time they reach their 50s.
Its analysis of average incomes shows that becoming a millionaire before tax is well within most men’s grasp, as long as they start work at 18 and then earn the average income for their age bracket through to age 65.
Vince Smith-Hughes, retirement expert at Prudential, said: “We might think that making a million is a pipedream, but it will become a reality for those who earn an average salary throughout their working lives, especially if they are men.
“Looking at cumulative earnings in this light helps us to understand how much we could potentially save for our retirement. Of course, ongoing financial pressures and priorities means that it is not always that easy, but it remains the case that the earlier you save and the more you save, the better retirement income you will have.”
A man on an average income can expect to be an income millionaire when he is 50 years, six months and two weeks old. However, women will find it harder than men to make the magic million, reaching the milestone at 72 years, four months and three weeks – 22 years after their male counterparts.
Prudential attributes this drastic time difference down to the life choices that both sexes make. Women tend to earn less throughout their lifetime as they are far likelier to have children and be the stay at home parent, therefore directly affecting their income.
Of course, this £1m will be earned before tax which means that the average worker will have also paid £137,101 in income tax and £84,129 in national insurance.
However if the average worker contributes to a pension throughout their working life, they can benefit from significant tax relief. An individual who pays £100 per month personally into a pension over a 40 year working lifetime could receive additional tax relief of at least £12,000.
People are further encouraged to start thinking about their retirement plans as concerns over recent reports by the Office for National Statistics (ONS) highlighted that
British pensioners are at a greater risk of poverty compared to their European counterparts.
As the retirement age is lifted ever higher, saving for an adequate nest egg for retirement will be the priority of many.
Smith-Hughes continued: “Pensions remain highly efficient tax saving vehicles which can help savers to claw-back some of the tax that they have paid over the years.”
Despite the potential to become millionaires by your 50s inflation has downgraded the lifestyle that £1m can buy from extravagant lifestyle to an affluent one, according to new research from first direct.
In 1992, £1m could buy a basket of goods including the average house in Kensington and Chelsea, a Rolls Royce, a seagoing luxury yacht, and holiday homes in Tuscany and Cornwall whereas nowadays, it can buy the average house in Hounslow, an Aston Martin and a river cruiser.
Today, the cost of the 1992 basket has shot up by 163% to £2,619,720. Over the same period, the average gross annual salary has increased by 100% from £15,850 in 1992 to £31,606 today.
Bruno Genovese, Head of Savings at first direct said: “Over the past 20 years, the things that a million pounds can buy have become increasingly modest and our view of a million pounds as a sum of money has started to change – it is still seen as a significant amount of money by most people but not by as many as it once was.”
Inflation and the fact a new millionaire is created almost every week with the National Lottery means some people now have a higher expectation of what constitutes a large sum of money.
“However, most people can’t rely on a lottery win for their financial planning and, as the things they hope to buy increase in price, their best option lies in building up a savings pot. Even if it doesn’t make you an instant millionaire, it gives you financial stability, helps you to afford the things you want and, over time, might just help to pay for that sports car.”