Savings warning: Retirees facing emergency cash ‘shortfall’ – calculate what’s needed now
Guy Opperman discusses the 'priority' for pension trustees
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Savings are at dangerously low levels according to new research from HL, with savers across the economic spectrum at risk. According to HL, less than half of UK savers have enough set aside for emergencies, and this includes retirees and high earners.
In June, Focaldata conducted a nationally representative survey of 10,030 UK adults.
HL examined this data and found that:
- 51 percent of people don’t have enough emergency savings.
- Almost half of retirees (46 percent) don’t have a big enough safety net, along with almost one in four households earning over £100,000.
- 11 percent of UK households have a savings shortfall, but have no idea they’re vulnerable.
Sarah Coles, a personal finance analyst at HL, commented on the data.
Ms Coles said: “More than half of us are vulnerable to nasty surprises, because we don’t have enough emergency savings to protect ourselves.
“Even retirees and higher earners have holes in their savings safety net.
“What’s even more alarming is how many people with a shortfall have no idea of the risk they’re taking, and that they’re not as resilient as they think.
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“People of working age should have emergency savings of three to six months’ worth of essential spending in an easy access account, while those in retirement need one to three years’ worth. However, 52 percent of people of working age and 46 percent of retired people fall short of this.
“It’s worth bearing in mind that this research was carried out more than a year into the crisis, which has exacerbated the gap between those with enough cash to get by and those who are struggling.
“Among those without enough emergency savings, two in five households say things have got worse since the start of 2021, and only one in five say they’ve improved, so there’s a good chance we’re less resilient than at the outbreak of the pandemic.”
Ms Coles went on to break down how savers, even those on high incomes, have ended up in this precarious position.
Ms Coles continued: “The emergency savings gap isn’t just an issue for lower earners: 23 percent of those households bringing in over £100,000 a year say they couldn’t cover their essential outgoings for three months.
“This may be due in part to the tendency of expenses to expand to fill the cash available, so there’s nothing left over for savings. If you live in a property with a large mortgage, have children at private school, or expect to take several holidays a year, then eventually all these things feel like necessities that you can’t scale back in order to free up cash for emergencies.
“”They may have other assets, including investments, which they feel they could draw on in an emergency. And there will be higher earners who find the target of three-six months of these outgoings is so high that they decide it’s a waste to keep that much in cash earning next to no interest and want to put it elsewhere to make it work harder. They risk having to withdraw money from their portfolio at completely the wrong time, which can mean facing a loss. At times, depending on the nature of the investments, this can be significant.
“Those on higher incomes who lack savings are far more vulnerable than they think. A drop in income, even in the short term, could leave them falling short of their essential commitments, which can have far-reaching consequences for years.
“Millions of those who don’t have enough savings say they worry about it all the time. Almost two in five are worried about it, and one in five worry every day.
“But while this is concerning, it at least allows them to prioritise savings whenever they can. What’s even more alarming is the huge number of people who don’t have enough savings and aren’t worried about it at all – particularly among retirees.
“One in ten (11 percent) people don’t have enough set aside in savings to be financially resilient, but are perfectly happy with the level of savings they have. This rises to 21 percent among those who have retired. This may be because they have no idea of how much they should have, so having any savings at all lulls them into a false sense of security.”
Fortunately, Ms Coles concluded by breaking down how much people should have set aside for unforeseen emergencies.
The amount needed may not be as insurmountable as some fear, as Ms Coles explained: “People of working age should have three-six months’ worth of essential spending in an easy access account for emergencies. Our calculations show that this means having at least £3,000 in savings for the average single person. In retirement, you should have one to three years’ worth, which should be at least £9,000.
“However, you need to calculate the level that’s right for you. The first step will be to work out what you’re actually spending. Some people keep a spending diary so they know where their cash is going.
“Once you know what you’re spending on various things, you need to decide which of those expenses you want to be able to meet if you lose your income. Some people want to cover the lot, others want to ensure they’re still comfortable, while others just choose to keep the essentials. The decision over which expenses to cover will depend in part on the kind of compromises we’re prepared to make during tough times, and just how high a savings target we’re happy to aim for.
“Where you fall within the range for each age group will often come down to your circumstances too. During your working life this will include things like how secure your employment is, who else depends on you, and how much flexibility you have over your outgoings. In retirement it will include issues such as how you are taking a retirement income, and how much of it is guaranteed.”
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