Do you believe you are:
- Wealthy?
- Well off?
- Doing OK but not as well as your peers?
- Broke and struggling?
A high-level UK C-suite manager recently took his employer to a tribunal because he felt his £250,000 base rate salary was insufficient without the bonus his employer had decided to cut. Frank Frulio claimed that the loss of his extra 60%
”Created a sense of panic, knowing that I could no longer afford to work.”
Most people would consider earning that much would definitely put them into the wealthy bracket. According to recent research ‘Your Money’s Worth: Defining Wealth in 2025’ for HSBC UK:
“People in the UK believe an average annual income of £213,000 constitutes wealth, over six times the national average salary.”
Now here’s another question. How do your earnings (and let’s include post retirement income here) compare with others in your age group, social group or peers? You can work this out using the ONC Wealth Calculator here but chances are right now, you think you are not doing as well as others.
Indeed, it appears that the more you earn, the more you consider yourself as not wealthy:
“Despite being in the top 4% of UK earners, only one in 10 people earning £100,000 or more would describe themselves as ‘wealthy’, while only 1% of the UK population identify as such.”
Have you got money dysmorphia?
The issue, according to an interesting article in The Independent, is the rise of “money dysmorphia”, which is when you think you are poorer than you actually are. As the article reports:
“Studies have shown a significant “wealth perception gap”, with people far more likely to underestimate their earnings in comparison to others than overestimate or have a realistic appraisal of them.“
How much money do you need to feel rich?
It may also depend on how old you are as to how much money you would need to feel rich:
- Aged 18 to 24: annual salary of £343,000
- Aged 25 to 34: annual salary of £324,000
- Aged 34 to 46: annual salary of £135,000
In reality, the average wage in the financial year 2020-2021 was just £31,400 according to the ONS.
What kind of lifestyle do you lead?
Those in the higher earning brackets may feel concerned about money due to “lifestyle creep”, when their spending increases as their income rises. What others may consider a luxury – foreign holidays, new cars, designer clothes, even investments – are part of their essentials list. Hence the outcry about VAT on private school fees, which this income group consider a necessity rather than a luxury.
Retirement planning for those who don’t think they can retire
So, how does this all relate to retirement planning? Simple: most people I help believe they do not have sufficient money to retire, even though they actually have more than enough.
Not just enough, MORE than enough.
Like the survey finds, they significantly underestimate their own wealth, and in turn have not properly costed the lifestyle they want to fund. Sometimes it takes considerable time and a change of mindset to realise just how substantial your retirement fund is.
For many retirees I work with, spending money was always a consideration when they were growing up. Holidays were not a given. Neither was a car. So when they are told they can enjoy at least three holidays a year and a new car every two years, it takes time and effort to adjust their mindset accordingly.
Owning your own home
One of the factors that makes the biggest difference to that mindset is their mortgage. Retirees will usually have paid off (or shortly will pay off) the mortgage on their home. Indeed, their entire estate may technically be worth £1m+ pounds if the value of the family home is taken into consideration.
One of the reasons the younger generation think that they require so much wealth is because buying a property is very expensive. People retiring now needed around 4-5 times their salary to secure a mortgage to buy their first property when they were aged under 30. Today, it can be ten times the salary for that age group.
Retirees who have paid off their mortgage have considerably more disposable income than previously, just at the point when they can start to draw pensions. So whilst the ‘gap’ they see between what they used to earn and retirement income may seem wider, they are not shelling out on a mortgage, or paying those work-related expenses – cars, smart clothing, holidays at expensive times of year, high priced coffee every morning, etc.
How much do you need to retire?
So, how much do you need to retire? According to Legal and General, you need a pension pot worth £222k for a ‘happy’ retirement. That’s an income of just £20,400 a year.
Yes, you probably will need a little more if you want to lead a luxury retirement lifestyle, but again, it depends on what you perceive as luxury and what is essential.
For me, exciting holidays are an essential. I put great value on spending time with my wife Hazel travelling to experience new places, from the Antarctic to the South American rainforest.
Funding these trips means we spend less on other parts of our life. We recently moved house, but it’s not a glitzy gin palace. My car is modest and has plenty of miles on the clock. And if you see me in a sharp suit, it’s either a wedding or a big anniversary!
I prioritise my income and my time to what is important to me and Hazel. I advise my clients to do exactly the same as they approach the end of their full-time career, for an enjoyable and purposeful retirement they can enjoy without financial concerns.
Needless to say, I also advise putting in place contingency plans to account for the inevitable rise in the cost of living, and unexpected global twists and turns. But that’s what any planning, including retirement planning, is all about.
Planning to succeed
If you would like to discuss your retirement plans (or lack of them) with me, just book your no-obligation, no-cost 30mins Discovery call. We can talk through your retirement goals and current provisions, and how we can work together for planning a great retirement.
