When are we at our earning peak?

Savings

MoneyPlus Features Team

25th July 2017 at 11:00am

According to data released from the Office for National Statistics (ONS) it would appear our earning power peaks around our 40s.

Men will see their salary reach its highest in their 40s with women peaking just a fraction earlier.

So what can we take from these revelations?

What these statistics highlight is just how important it is to make the most of the boom times when it comes to saving.

Investing when your earning potential is at its maximum could take the pressure off when you reach your 50s and 60s.

Investing when your earning potential is at its maximum could take the pressure off when you reach your 50s and 60s, when you could potentially see your income drop but still have other financial responsibilities to cope with.

However, your saving plan should not be solely based on when you’re at your financial peak. Ideally, by the time you reach your 40s you’ll already have built up some significant savings.

Making a point to save as much as you can during the early part of your working life can prove valuable if you want to secure the lifestyle you desire in your life after work.

Saving as much as you can for as long as you can is important; retirement saving is a marathon not a sprint.

Find out more about how saving early can help you to avoid any financial regrets.

Saving through the decades

Here’s a quick guide on things to do and consider as you make life’s steady climb towards your earning pinnacle.

In your 20s

  • Focus on clearing your debts
  • Contribute to a personal or company pension
  • Consider opening an ISA
  • Save what you can afford

In your twenties you’ll probably have secured your first proper job with a proper salary.

Retirement will seem a long way in the future but it’s worth thinking about it even then. With the introduction of auto enrolment the likelihood is you’ll be part of a company pension scheme, so you’ll have made the first step.

However, at this stage, it’s reasonable to allow other financial objectives to take priority.

Start repaying any student debt, bank and credit card debt too. Make sure you’ve enough to cover living costs of course.

What’s left over you could put into your pension, especially if your company will match your contributions.

Taking advantage of generous employer contributions is worth starting if your budget allows.

Taking advantage of generous employer contributions is worth starting if your budget allows.

And if you’ve concerns about accessing your finances should you need them, then you might also want to think about opening a tax-free ISA.

You’re still building financial resources for the future but have greater flexibility in terms of access. It’s also a good way of forming a healthy savings habit.

In your 30s

  • Reassess your debts and outgoings
  • Make sure you’ve joined your company pension scheme
  • Define your investment strategy

In your 30s it’s likely that you’ll have a bunch of different financial commitments, you may have got married, started a family, bought a house.

Now is the time to reassess your debts and outgoings and do a spot of financial planning.

Now is the time to reassess your debts and outgoings and do a spot of financial planning.

You need to see what your outgoings and incomings are, make sure your budget is under control and clear debts where possible.

Focus on paying off any unsecured debt such as credit cards and personal loans, but also have some rainy day funds in place should the unexpected happen.

If you’ve not already been enrolled, you also need to think about joining your company pension scheme, make the most of your employer contributions if they are available.

It’s equally important at this stage you engage with your pension. See where you’re invested, assess whether you’re happy in the default funds or perhaps are comfortable taking more risk at this early stage.

Pensions are a long term savings plan so it’s worth considering what investment strategy best suits your financial objectives. And if you’re unsure, we’d always recommend taking financial advice.

In your 40s

  • If you’ve not started saving yet, do something about it
  • Consider what you want from retirement
  • If you’re earnings are peaking – dedicate more to your pension

You’re in your 40s now and things are getting serious, you are potentially a decade or so away from being able to retire.

This is the time to take your retirement planning seriously.

Have a think about when you want to retire and what you want from your life after work, and of course what this might cost.

Have a think about when you want to retire and what you want from your life after work.

You’ll need to start planning the sort of income you expect to receive in retirement. And don’t forget life expectancy is on the up, so you need to factor how long you might spend in retirement and work that into your calculations.

Ideally, you’ll already have built up some retirement savings in the form of ISAs or a company or personal pension.

But, if you’ve not already started, don’t despair; as it’s still not too late. It’s now just going to require more effort.

Going by the ONS research you’re earnings are likely to be approaching their highest during this decade, and hopefully by now you should be on top of your debts.

All being good you should be in a strong position to start throwing some real money towards planning for your future.

To make sure you’re making the most of this boom period in your earnings, rather than just increasing your spending when a pay rise or a bonus comes in, think about putting this money towards boosting your retirement savings.

And if you plan to pack it all in early, then factor this into your thinking and make sure you’re saving enough.

The fruits of your labour

By starting to save early and adapting over time, you could be giving yourself a 30 year head start.

And what’s comforting is that with careful planning and decisive provision, you don’t necessarily have to deprive yourself of life’s pleasures to compensate.

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The information in this blog or any response to comments should not be regarded as financial advice. A pension is an investment and its value can go up or down and may be worth less than you paid in. Laws and tax rules may change in the future. The information here is based on our understanding in July 2017. Your personal circumstances also have an impact on tax treatment.