Have you ever wondered how much you actually earn in a lifetime of hard work? Well, according to research carried out by Prudential, the average UK worker will have earned £1 million by the time they are just over 56-and-a-half years old.
This figure is based on someone who started work at 18 and continues to receive an average income throughout their working life. However, there are gender differences as a man will have earned his first million before he is 51 years old, but a woman will have to wait 20 years longer - well past pension age - to nearly 70-and-a-half.
Most paycheques come with those unfortunate words Tax and National Insurance, and it will come as a shock to some that, by the time the average worker has earned their first million, they will have paid out around £123,300 in tax and £93,200 in National Insurance.
But there are things we can do to reduce the impact of tax on our earnings, including contributing to a pension. An individual paying £100 per month into a pension over a 40-year career could receive additional tax relief of £12,000 – now that sounds better!
Stan Russell, retirement expert at Prudential, said: "Being a millionaire is a dream for most of us, but the reality is that the average UK employee will easily earn £1 million in a lifetime of work. For many people, this cumulative view of lifetime earnings will help open their eyes to the amounts they could be saving for retirement. [And] it is definitely the case that the earlier you save and the more you save, the better the retirement income you can expect and the more tax relief you will receive."
As further research, carried out by Aviva, shows that many are misjudging how much they will need for retirement, making the most of your pension options - as well as tax relief - couldn't be more important.
Their study showed that the average retired person intends to go on three holidays a year - one abroad - run a car, and also fill their time with new hobbies and activities. Sounds a very positive approach to retirement, doesn't it? Until you think about the finances!
To cover this kind of lifestyle, along with the bills and day-to-day living expenses, the average pensioner would need to have £1,200 coming in each month – amounting to £14,185 per year each.
Clive Bolton, of Aviva, said: "It's all very well to have an idea of what you want to do after you finish working, but many people underestimate how much money they will need. Your state pension is unlikely to cover everything you want to do during your retirement, so it's important to have some kind of financial plan in place to provide additional funds.
"The change to pensions and annuities announced in this year's budget now means you can spend your pension pot how you want, but given we're all living longer too, it's still important to make sure you have enough put by to cover your annual costs for the long term.''
Worryingly, however, it seems that around three in ten over-40s have no plans in place to fund their retirement, and even out of those that have a financial plan, 64% admit it's probably not going to be enough to do everything they want to do, while a further 64% are concerned about simply paying for day-to-day living costs.
Hindsight would be a great thing and more than six in ten over-40s wish they had started to put money aside for their retirement earlier. So, take heed and start to plan for your retirement as early as you can. Consider all your savings options – can you take advantage of a company pension scheme, do you need to set up your own plan and are you making the most of your tax-efficient ISA options – and you could be well on the way to pursuing all your retirement goals.
Read our retirement guides.
Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.
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