Don’t let your financial adviser scare you into saving too much

Most stories in the papers tell us that people are worse off than they think they are – or we think they are. So, I have been pleased this week to see two pointing out the opposite. The first, in The Times, tells us that “the world is better off than we thought”.

The OECD has been putting out reports into global well-being since 1820, and notes that if you take a few factors outside straightforward GDP into account, the world looks to be in pretty good shape. GDP per head has gone up ten-fold since 1820, and wages have also risen very substantially. But add in advances in education and it looks even more “impressive.”

Literacy rates are “close to 100% everywhere expect Africa and Southeast Asia, but even in these places, the rates are over 60%. Life expectancy has also improved everywhere hitting 60-70 years in most places bar Africa, which is lagging nastily in this area. You can read more on all this here.

The second brings us good news from closer to home. The IFS has been looking at just how poor most pensioners are. Their answer? On average not very poor at all. Instead, if you look at how much money they need to maintain their standard of living after they finish working, 92% of couples born in the 1940s have much more money than they need.

The average amount of cash left over after spending on essentials? £220,000. And even with property removed from the equation, the average surplus came to £120,000. It seems, says Cormac O’Dea from the IFS that “this is a cohort that has ended up saving more than it needs for retirement.”

Clearly not all the generations that follow will have the same surplus – without final salary pension schemes and the greatest housing boom ever to rely on, today’s young aren’t getting off to a brilliant saving start (although they should find that all this surplus wealth soon cascades down to them).

But nonetheless, this study does make an important point: the financial industry is always keen to terrify us into saving more and more and more. But you don’t need nearly as much money in retirement as you do when you are in work – your tax bills are lower (no National Insurance), your children are mostly moved out, and of course, you aren’t saving money any more.

Being retired is a relatively cheap business – in a way that being a working parent just isn’t. It is possible to worry too much about the future and it is possible to over save. Don’t let your adviser tell you anything different!