We have some good news
for Peter Dennis Blandford Townshend, born 1945 in London, England. In two years' time, Pete, our financial experts reckon you will be the perfect age. You and your fellow end-of-war babies will have a good pension, no dependants and decent housing equity. At a time when so many people are facing difficult financial times, you'll be sitting (as the old song goes) mighty pretty.
Still, it wasn't meant to turn out like that, Pete. In 1965 you wrote a very different song called 'My Generation'. Its line — "I hope I die before
I get old" — remains the central cri de coeur of the 60s generation gap: better to be
dead than aspire to the life of respectability, affluence and normality your elders led. What would today's 20-year-old rebels write? How about, "I hope I live long enough for the benefits of intergenerational equity to become a reality"? Not quite as snappy, perhaps. But, for them, intergenerational equity is just as big a deal as the generation gap ever was in the 60s. Then, let's face it, the main issues were whether the older generation would let you wear your hair over your collar or buy a pair
of bell-bottoms. Now, it's whether your elders will ever let you have a slice of the action — or freeze you out forever from the chance to be respectable, affluent and normal.
Let's explain what this intergenerational equity is. The economist James Tobin describes it thus: "The trustees of endowed institutions are the guardians of the future against the claims of the present. Their task in managing the endowment is to preserve equity among generations." So if the leaders of a tribe sell their forest land for palm oil cultivation they might realise a comfortable profit for themselves but impoverish their grandchildren. In other words, it's short-termism by another name.
Let's take an example nearer to home — me. As a baby boomer, I had a state education and my university fees were paid for. Even though
I was from a relatively well-off middle-class home I was given a student grant to study. So any debts I left university with were solely down to, shall we say, lifestyle choices rather than the government asking me for a down payment
on my future earning potential. By the age of 26 I could afford a flat in a fashionable London suburb at less than three times my not extravagant salary (today, first
time buyers in Islington must have a stellar career in the City or a wealthy parent willing to put the property in a trust fund). Since then, I've gained and lost on the property and financial markets and opted out
of the state pension, while being able to own a car, travel and eat out.
If you're a baby boomer you're probably nodding your head in agreement: we've had our ups and downs, seen a couple of recessions, but done all right. If you're from Generations X
or Y, you may be screaming "you smug b******" at the page. For today's similarly average college leavers, such things are distant fantasies. And that, combined with the dismal employment prospects for young people, is what's causing our politicians and budget-setters so much angst. Lock out a whole generation from the tried and trusted route of employment, property ownership, savings and pensions and the whole system is under threat.
In the 1960s it was students at sit-ins talking
about the end of capitalism; now it's The Economist magazine.
Even so, the political commentator Peter Oborne believes there is "no frontline debate" about intergenerational equity in European and American politics. The political and economic debate needs to move from equality between classes to equality between age groups. He makes an exception for the British Conservative politician David Willetts, whose recent book, The Pinch, argues that the "intergenerational contract" has been
broken by the baby boomers. By 2030, we will make up the biggest group
of pensioners in history — the fiscal 'pinch' that gives Willetts his title. Writers such as Oborne are in no doubt that the baby boomers are guilty
of "squandering our relatively benign financial inheritance." We lived it up in the good times by awarding ourselves fat pensions, student grants and the like and failed to put enough aside for, well, a financial crash that no one predicted and a demographic time bomb that everyone did.
But no one feels secure at times like these: whether you're a graduate, a young couple trying to get on the housing ladder, a family caught in the 'squeezed middle' of rising inflation and flat wages or a pensioner who's seen the value of their savings decline by 70
per cent since the crash. So we decided to seek professional advice. We asked one of the UK's leading financial advisors, Hargreaves Lansdown, to take a dispassionate look at
the numbers and the trends. First, we wanted to know what is the ideal
and least ideal age to be — from a financial perspective. Their conclusions make for surprising reading. Then we asked for some positive messages for all of us, whatever age we are.
Rather than wait for the politicians to sort out intergenerational equity — that could take a rather long time — we asked Hargreaves Lansdown's head of advice, Danny Cox, to help us through the minefield. One positive effect of the 2008 crash is that we're all a lot more knowledgeable about the state of our finances — personal, national and global — than we were before it happened.
Or, as Pete Townshend might put it, 'We Won't Get Fooled Again'.
Unable to get on housing ladder
High expenditure —
for example, rent,
loan repayment —
but low salary
High car insurance
Few financial responsibilities
Spend less than you earn and save the difference. Get into
the savings habit
now. Save into a cash account to build an emergency fund or
cash cushion. If you have the chance to
join an employer's pension scheme you should do so, or risk missing out on an employer contribution.
Can't get mortgage
No decent pension, unless public sector
High credit card debt
Paid off student debt
Easy access to credit card debt
Equity on homes
bought ten years ago
Improving earnings/salary outlook
Both your income and expenditure will increase as you get a foot on the housing ladder, so shop around to minimise utility bills, but don't scrimp on insurance. The biggest hazard to long-term security is earning power. If you don't have insurance through work, get some with income protection insurance. And keep on saving.
High school fees
Possibly caught in negative equity
Highest expenditure overall
Paying for kids at uni
On housing ladder — possibly decent equity
May have final salary scheme if public sector
Don't be tempted to use equity in your house to subsidise spending unless you have a clear repayment plan. Focus on increasing savings
to pensions or other retirement plans. Save what you can afford to and aim to increase this as your disposable income increases. Insure against illness and death.
Annuity rates poor
Pension plans incomplete
Kids still living at home or at college
Supporting parents in old age care
Peak earning power
Decent level of savings
Clearing the mortgage will feel like a weight
off your shoulders and the money saved
can be diverted into retirement savings. Obtain forecasts of the income your pensions may give you at retirement. Use these to monitor your progress and top up where
you can. Don't forget
to factor in inflation. Reduce tax to make more of your money.
Parents in care
Market gone sideways for a decade
Annuity rates poor if you haven't retired
Low tax rates for chunks of peak earning years
More likely to have final salary pension
Good housing equity
Bull run in equities for 20 years (80s and 90s)
Decent annuity if retired
Shop around to get the best deal on an annuity. Switch investments from growth to income. An RPI-linked pension will help offset increasing prices, although the starting income will be lower. Generally, most people hold between 10 per cent and 25 per cent of their liquid
assets in cash.
Potential care fees
Good housing equity
In your 70s, general spending falls and
this is often the time when inheritance tax planning and thoughts of gifting start. The earlier gifts are made the better. Long-term care costs might be required so it is vital
not to give away too much. In the UK, you can no longer insure against the costs of long-term care. However, you can ensure that you have reserved sufficient funds to meet care costs. Keep with tax-efficient investments such as ISAs.
Health insurance costs
Long-term care costs
No access to credit
Good housing equity
In your 80s, an immediate care annuity is a tax-efficient way
to provide additional income to meet care costs if they are required. In exchange for a lump sum, a high level of tax free income is paid for life. And,
with your inheritance plans in place, now
is the time to stop worrying about money - buy that Porsche,
go on that cruise and bungee jump off the Sydney harbour bridge. After all, 80 is the
So what's the
best age to be?
Danny Cox says: "Congratulations! You are young enough to be in good health and enjoy travel and so on — yet old enough
to be in very good financial health." Which is good news for... Bob Dylan, Martha Stewart, Alex Ferguson, Michael Bloomberg (as if he needs any more help) and Neil Kinnock.
So what's the worst age to be?
Danny Cox says: "You are at possibly your highest level of expenditure with little sign
of that going down. There are worries over mortgage rate rises, saving for your retirement and maybe paying for kids to go through university. But cheer up — you have plenty
of time to acquire the money you're undoubtedly going to need!" Which is slightly less good news for...
Eric Cantona, Helena Bonham-Carter,
Mike Tyson, Roman Abramovich (not that
he needs to worry overmuch), Gordon Ramsay and Davina McCall.
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