Being on a high income might make you feel financially impregnable to life’s ups and downs. But here’s a timely warning that being “better heeled” can come with some vulnerabilities.

The findings come from the HL Savings and Resilience Barometer, which show that:

• The top fifth of earners don’t just have more debt than any other income group… they also have higher debt repayments as a percentage of their income.
• Higher earners also have a bigger proportion of their debt on variable rates than people on lower incomes.
• Almost half don’t have enough life insurance (47%) and half don’t have critical illness cover (49%).

Sarah Coles, head of personal finance, Hargreaves Lansdown comments: “Earning more might make your finances feel bulletproof. You’re more likely to have enough savings and to have started investing, so you may be feeling relatively comfortable.

“However, higher earners have four major financial Achilles’ Heels: running a household with one major breadwinner; carrying serious debts; spending far more than average; and falling short on insurance ­– all of which makes you much less resilient if your circumstances change.”

Debt

Higher earners take on far more debt than anyone else – and their debt repayments make up a larger proportion of their income.

Worryingly, the HL Savings & Resilience Barometer shows that only around one in ten (11%) higher earners are considered to have an affordable level of debt – given how much of their income goes towards debt repayment.

Also significant is that they have more of this debt on variable interest rates – including credit cards or tracker mortgages… where interest rates can sometimes rise abruptly in response to turbulence in the economy.

And, while those on higher incomes are the least likely to be in arrears, an awful lot is riding on their ability to continue earning at their current level – which makes them extremely vulnerable to unexpected changes in circumstances.

Spending

Higher earners spend more too. HL’s Barometer shows that on average these high earning households spend £71,947 a year – and £17,266 of it is on essential housing costs – like the mortgage.

It means they’re spending 55% more than average on the essentials. Their average household income is £80,222, so they can currently cover their costs… but if they lost an income, they couldn’t last long with those kinds of outgoings.

Balance of earnings

On average, only a fifth of households have enough “equality of income” between two partners to make them resilient. Among the highest earners this rises to 29%, but it still means the vast majority are relying on a major breadwinner to keep paying out on their commitments.

Safety nets

To be resilient, households need enough emergency savings to cover 3-6 months’ worth of essential spending – rising to 1-3 years’ worth in retirement. This should be in a competitive easy access savings account, so you can get your hands on it in a hurry.

The good news is that 92% of higher earners have enough to cover at least three months’ worth of essentials.

However… the Barometer figures reveal that only 53% have enough life insurance to be resilient, and while this is higher than the overall average of 43%, the gap is still worrying.

It also shows that those with children are particularly likely to fall short, and 49% of parents in the top fifth of earners don’t have enough life cover.  Often people will appreciate that life insurance needs to pay off their mortgage after their death, but they may not think about any children, and covering the cost of bringing them up.

The good news is that the average cost of closing the life insurance gap is just £134 a year and for homeowners with at least one child, it costs an average of £321 – which should be easily doable

Meanwhile, only 51% have critical illness cover – way more than the overall average of 22% – and this kind of cover is also well within their reach… begging the question of why more of them haven’t taken out this insurance.

And in conclusion…

These figures are a useful reminder that even the better heeled amongst us need to look at our resilience in the round and not neglect any corner of our finances: we need to consider exactly what help our family would need if something was to happen to us, and ensure we have the savings and insurance in place to cover it.

How can the RetireEasy LifePlan bolster your financial resilience?

One of the unique features of the RetireEasy LifePlan is that you can run different scenarios through the programme to show what impact a sudden or unexpected change would make to your circumstances – such as leaving paid employment earlier than planned or an investment not realising its expected value – and track that impact right through your retirement years.

That way you can see at a glance just where your financial vulnerabilities might lie – and make any necessary adjustments well in time.