Are European Mass Affluents as in Control of their Financial Future as They Think?

Europe’s mass affluent investors claim to feel in control of their financial future and confident they are making the right savings and investment decisions; however, their reliance on hoarding their savings in cash could result in their longer term financial goals being compromised.

The BlackRock Global Investor Pulse Survey reveals that 69% of Europe’s mass affluent investors claim to take financial planning seriously and 56% say that most of their savings are for the long term. However, one in three (29%) are not currently saving for retirement and one in four (25%) say they will never be able to retire fully.

When asked about the greatest risks to their financial future, concerns about the state of the domestic economy (38%), tax increases (37%) and state of the global economy (25%) were the top three topics raised across Europe, with one in five (22%) worried about job security. It is against this backdrop that 50% of European mass affluents responded that preserving wealth is their top priority and just over one in two (54%) claimed they were not willing to take any risks with their money.

Make longevity your investment friend. With increased longevity, savings and investment pots need to work harder to sustain an income for a much longer retirement of often 20 to 30 years. In the European Union, a man retiring at the age of 65 has a life expectancy of 77 years and a woman retiring at the same age has a life expectancy of 83i.

With the benefit of time on their side younger generations can afford to take a longer term view on their investments.

The survey found, however, that Europeans aged 25-34 hold 49% of their portfolio in cash with a relatively smaller allocation to equities (12%) and bonds (7%). Given that one in two (50%) of this age group say growing their wealth is their top priority, only a third (35%) are willing to take higher risks to achieve higher returns.

Great expectations for young Brits in retirement 25 – 34 year olds in the UK, similar to the average European, have the highest expectations for retirement of all age groups claiming to need a household income of £54,000 in later life and think they will need a pot of £357,500 to achieve it. They will in fact require a pot of £1,040,000, over two and a half times moreii.

This disconnect is particularly worrying when one in two (50%) British 25- 34 year olds say they are not yet saving for retirement and are the most concerned about outliving their savings of any age group (59%). In contrast, when asked what they are currently saving for, the majority said a rainy day (50%) and a holiday (41%) suggesting that short term needs are prioritized over longer term goals.

Alex Hoctor-Duncan, head of EMEA Retail commented: “Younger generations have the benefit of longevity on their side to help grow their savings pot. However with half of their pot (52%) in cash deposits, it is likely they will need to reassess their aspirations to secure an income of £54,300 in retirement. If they intend to use only cash to fund their retirement, at these levels they will not be able to retire until they are 92.”

“While having an accessible pool of money makes sense for this age group, there is a genuine opportunity to lock in greater returns if people can reassess their appetite for risk and make saving and investing for the long term higher on their list of ‘life’ priorities. The survey shows that risk appetite wanes as people get older so it’s important to make your money work as hard for you as possible for as long as possible with longer retirements on the horizon for us all”

Income is a priority but knowledge is weak. The survey showed that European mass affluents are engaged in their financial affairs with 70% saying they feel confident in the saving and investments decisions they are making. However, when asked about the methods for planning or reviewing their long term finances, almost half (47%) claimed to use their own thoughts and ideas. This mismatch between financial engagement and knowledge is evidenced when looking at income generating investments.

• 62% of mass affluents across Europe say earning an income on their investments is important to them;

• But only 37% are knowledgeable about today’s best income generating investments

• 44% say equities will help grow their savings and investments

• Yet 26% think that cash will help generate regular income

• And 18% believe cash helps protect against the impact of inflation

Alex Hoctor-Duncan further commented: “Europe’s mass affluent investors want to preserve their wealth and have regular income both now and in retirement. With 38% of their total savings and investments in cash and one in two claiming to keep their allocation the same this year, it’s important that guidance is provided to this key group of investors to help them understand that cash does not come without any risks. While inflation may not be an imminent concern across Europe, over the long term when combined with low interest rates it can erode capital, so it’s important to consider investments which have a focus on the outcome.”

With the benefit of hindsight – wisdom from elders

When asked what advice retirees would give to help younger generations prepare for a comfortable retirement, their top five recommendations were…

• 72% – Start saving as early as possible

• 66% – Think long term

• 56% – Regularly review your savings and investments

• 53% – Save as much as you can

• 47% – Pay off your debts

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