Updated 07 January 2020
Welcome to the new Twenties! Will they be roaring, soaring, or just quietly snoring? So much can happen in 10 years, and a lot of it is up to you. Here’s how you can decide the next decade. Article by Nick Green.
If you could send a postcard to yourself in 2010, would the younger you believe it? Ten years seems a long time, but it passes in a flash. As we enter a brand new decade, it’s natural to wonder what further changes it will bring for you – and how you can prepare for them.
Ten years is also a useful time window for several kinds of financial planning. It’s long enough to deliver real results, while being close enough to let you target foreseeable goals. So if you want to achieve something for yourself this decade, just swap the ‘A’ for ‘I’ – and Decide.
We know that money loses value over time, but looking back 10 years gives you a real sense of how the years can erode your spending power. Even though it hasn’t been a decade of especially high inflation, £100 in 2010 would buy you £130 worth of goods in 2020. Prices on average have risen by nearly a third, and some have shot up by far more.
For instance, a fitness class that cost you £5 then would now be over £8, a £20 theatre ticket would now be around £36, and both private healthcare and university tuition are up by 150 per cent or more. Most kinds of travel costs have also increased year on year.
The decade also saw unprecedented political upheaval in the form of Brexit. In 2010 this was on no-one’s radar, yet it will define the coming 10 years at least. This shows how seismic changes can unfold in the space of a few years, and yet be unforeseen. But even though you can’t predict the future, you can prepare for it.
Many of life’s biggest decisions need a bit of a run-up if you’re going to make them work. Whatever your life stage, the Twenties are bound to hold a few major steps for you. Here’s how to get prepped for them.
The good news is that mortgage rates are much lower now than they were 10 years ago. In 2010 a fixed-rate two-year deal with a 20 per cent deposit would have meant interest of around 3.65 per cent. Today, you can achieve the same deal for about 1.43 per cent.
The less good news is that house prices have soared. In 2010 the average UK home sold for £167,888. By the end of 2019 this figure was now £232,969 – a rise of nearly 40 per cent.
If you’re buying your first home, the biggest challenge is saving up the deposit. Interest on savings has been flat for 10 years and may not improve for some time yet, but we offer you some ways around this in our guide to saving a deposit in six years or less. With luck and determination you could have a place of your own before the decade is out.
In terms of career advancement, it hasn’t been a great 10 years. Wages have risen slower than prices, so in terms of purchasing power the average employee now earns 3 per cent less than they did in 2010.
If this trend continues, those who wish to boost their income may have to move jobs rather than wait for significant pay rises. It should therefore pay off to invest in upskilling as the decade kicks off, with new training and qualifications that can translate into an improved career in a few years’ time.
Another option is diversification – or what is often known as moonlighting. Many ways now exist to create additional income streams while holding down a full-time job, and this in turn can be a stepping-stone towards full self-employment. With the UK’s economic outlook still in the balance, the 2020s should continue to favour self-starters and those who spot opportunities early.
Getting married continues to be one of the biggest decisions a person can make, and is arguably the most expensive (since, unlike buying a home, you don’t stand to get the money back one day). The average total cost of a wedding today is around £32,000 – significantly up on the 2010 figure of just under £20,000. One factor in this change may be that the number of opposite sex marriages has been steadily falling by around 3 per cent per year, possibly because it is the less wealthy couples who are avoiding this particular expense.
Remember that being married can provide vital financial protection for partners in the event that they split up, or if one of them dies. Unless a will is in place, a cohabiting partner will not automatically inherit anything from a deceased partner, even if they share a mortgage and have children together. This can cause massive problems, so if you don’t plan to get married, make wills instead.
Couples should think about how they will manage their joint finances. Different attitudes to money are one of the biggest causes of relationship problems, so it’s worth confronting any points of financial friction early on. A financial adviser can resolve and prevent conflicts by providing an unbiased view.
The cost of raising a child has increased by an estimated six per cent a year over the past decade, much higher than ordinary inflation (which has averaged between two and three per cent). The cost of rearing the average child to the age of 21 is now estimated to be over £230,000. This is assuming that the child attends a state school – for privately educated children the figure could nearly double.
On the positive side, bringing up children involves financial milestones that are largely predictable. Seeing as you know when they will start school, secondary school, university and so on, you can set up investments to meet these costs. A child born at the start of the decade will be in the final year of primary school by the end of it – a sign of how the time flies.
To make even better use of the years to come, you could consider starting a SIPP for your child and give them a huge advantage in pension saving when they finally begin their career.
Did you achieve everything you dreamed of doing in the past 10 years? Ambitions take time and money to realise, and meanwhile there’s a rat race to be run. The start of a new decade is your chance to put your plans on the table and consider which ones to focus on this time.
Popular dreams include starting your own business, travel, moving overseas, building or developing your own home, and unique experiences – all of which may require extra funds and/or some form of career break. As well as the loss of immediate earnings, you will need to consider the impact on your pension savings. If you start investing for a career break now, you could make it a reality before the next decade passes you by.
Retirement is years away, you say? Then put the next 10 to good use. When it comes to pension saving, time is your most precious asset. If you’re 10 years or less from retirement, now is the time to seek advice on how to maximise your pension before you need it, and maybe start planning how you will access it. If you have more than 10 years before you retire, you can do even more.
Pensions have seen the most radical shake-up in the past decade. In 2015 the UK introduced ‘pension freedom’, which allowed savers to access their pension pots more flexibly and from an earlier age. This has given pensioners much more control over their money and potentially better value overall – but it also exposes them to greater risks and requires much more understanding. Pension freedom made it effectively essential for everyone accessing a pension pot to seek some form of financial advice or at least guidance.
The state pension age has also begun to shift upwards. In 2010 men received their state pension at 65 and women at 60, but by October 2020 both men and women will reach it at 66. The rise has left many women facing a gap in their income, leading to the emergence of the pressure group Women Against State Pension Inequality (WASPI).
Workplace pensions have also been changing. In 2010 some 66 per cent of them were defined benefit (DB) schemes, paying guaranteed incomes for life. Now just 39 per cent are DB schemes and the rest are defined contribution (DC), where you save up a pot of money to last you as long as possible.
On a positive note, many more people now have workplace pensions, thanks to auto-enrolment being rolled out over the decade. In 2010 fewer than half of all employees had a workplace pension, whereas three quarters now do. However, self-employed people still lag far behind.
The biggest warning for now is that many people still aren’t paying enough into their pensions. Average contribution levels have fallen from around four per cent in 2010 to under two per cent today. This won’t generate enough income to support these people in retirement.
How can I boost my pension over the next 10 years?
A decade is a very useful chunk of time in which to improve your pension. For instance, someone on a salary of £30,000 currently paying five per cent contributions could boost their pension pot by around £3,700 in 10 years just by increasing it to six per cent (or an extra £20 a month). Around £1,300 of this gain would come purely from tax relief and interest.
Here are some other positive actions you can take:
You should consult a financial adviser about which of these options (if any) are suitable for you.
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