Retirement

[The Don]

There seems to be some kind of disconnect between that first quote and the second, however I do understand what you mean. I would like to have a 3 storey solid gold, diamond encrusted mausoeum built to be buried in, and as things stand I have literally no idea how I will afford it.

I hope my post about my retirement aspirations vs. fears covers this off.

Our next door neighbour back in Bristol is in her 80's and had a rental property which provided her and her husband with a little extra income. Unfortunately he had a stroke and had to go into a nursing home. The flat had to be sold to fund his treatment and so now she only has the meagre state pension to live on (his occupational pension had no widows benefits) so even our rental property may not provide the income safety-net we had hoped for.

 

[GlennB]

....
Most of our pension money is in fairly conservative unit trusts (income and growth mainly) but there is a risk that the stock market could to a Japan and will be at 25% of its current value in 20 years time. This means we will have a pension of under £10,000 a year, £6,000 in today's money which does mean woolly hat and single bar electric fire.

Um, no. You have a second home bringing in £12k p.a. You have a main home that costs £1200 p.a. in heating oil. I have no idea of their total market value, but let's say 800k. At 65 you downsize to a 300k house in a cheap area and you have a cool half mill in cash which, spent at 20k p.a., will last you to age 90. And that's on top of what your pension fund might provide.

And, yes, I'm well aware of inflation, market swings and the rest, but you are extremely wealthy and well-provided for by most standards. If you end up in trouble the rest will be dying of hunger and hypothermia by the millions.

 

[Francesca R]

I'm 45 years old [ . . . ]

We [ . . . ] have no children

This places you just after the baby-boom generation and inside "generation X". A surprisingly large number of factors have swung against this generation (which includes me in it) whereas they worked strongly in favour of the baby-boomers, and thus shaped gen-X's aspirations (which are probably similar to yours), who looked at what their parents got out of the system in forming those aspirations. The bottom line is that baby boomers did very much better than they "should have", and gen-X are set to do considerably worse than they "should do". And these two observations are directly linked in a number of ways.

I'm not offering any answer, but a very good book that explains why events have conspired hugely against our generation, very lucidly, is "The Pinch" by David Willetts. It is almost completely non-partisan in my view, though I suspect that may left of centre folks are not going to be able to abstract from the fact that a Tory wrote it.

 

[Francesca R]

Currently in the UK funding care for the elderly is a huge problem that will only get worse. [ . . . ] If you have anything other than nominal assets then you are expected to fund your own care. When the money runs out then you're placed into local authority care (if it's available) which I imagine is very distressing to old and vulnerable people

This part sounds like a comment on the inadequacy of welfare transfers you expect to receive (given certain contingencies). I don't know if that is really your position, however.

I find the idea that elderly people in need of social care should be able to keep (IE bequeath) freehold property and/or leave intact assets that generate an income stream above average income, and then still receive public provision of that social care, to be distastefully regressive.

 

[The Don]

Um, no. You have a second home bringing in £12k p.a. You have a main home that costs £1200 p.a. in heating oil. I have no idea of their total market value, but let's say 800k. At 65 you downsize to a 300k house in a cheap area and you have a cool half mill in cash which, spent at 20k p.a., will last you to age 90. And that's on top of what your pension fund might provide. .

Sure, but likely we'll keep the rental property because its returns will, I hope, be index-linked. The £12,000 is a gross figure which excludes costs and assumes that the property is always rented out. I'm working on £8,000 a year as an average figure which pays for the various management fees, allows the property to be maintained inside and out and accounts for 80% average occupancy.

Downsizing our main home might allow an additional £100-150,000 to be put in our retirement fund and we may have to do just that. It's just a shame that it's unlikely that we'll get to spend our retirement years in a place I hope we will come to love.

btw, heat is just expensive. My Father spends neatly £1,000 a year heating a comparatively small terraced house on mains gas. Then again he does keep it quite warm (20C) all year round.

We can also blaze through the £150k very quickly. That would cover 4 years in the average nursing home. Given that neither Mrs Don nor myself will have any relatives on the same continent when we retire, it's likely that one or both of us will require nursing home care at some point.

And, yes, I'm well aware of inflation, market swings and the rest, but you are extremely wealthy and well-provided for by most standards. If you end up in trouble the rest will be dying of hunger and hypothermia by the millions.

That's the message I'm trying to say. Maybe they won't be dying of hunger or hypothermia but there'll be millions of pensioners living in grinding poverty in the future. I realise that we're in a far better position than all but a handful of gajillionaires and yet still, from our perspective, our retirement is far from secure.

Heaven knows that today's average pensioner is hardly well off but in 30 years time we'll be looking back on this as some kind of golden age where most retired people had at least some comforts.


Of course we could both get run over by a bus tomorrow, in which case Cats' Protection will get the lot - if this happens consider Zola and Nino as chief suspects.

 

[NewtonTrino]

That our investments will significantly underperform. Most of our pension money is in fairly conservative unit trusts (income and growth mainly) but there is a risk that the stock market could to a Japan and will be at 25% of its current value in 20 years time. This means we will have a pension of under £10,000 a year, £6,000 in today's money which does mean woolly hat and single bar electric fire.

The Don, the only part of your post that stuck out for me is that you are too conservatively invested. At your age you should have a bigger chunk of money directly in the stock market and not be invested in "safer" things. You have to risk your money to get the good returns. Although maybe I'm unclear on just how safe you are being but if you have 20 more years to go you can definitely be more aggressive.

Anyway, you are way way ahead of most people from what I can tell. I think you might be surprised at where you end up if you keep doing this (e.g. with more money than you can spend).

 

[The Don]

This places you just after the baby-boom generation and inside "generation X". A surprisingly large number of factors have swung against this generation (which includes me in it) whereas they worked strongly in favour of the baby-boomers, and thus shaped gen-X's aspirations (which are probably similar to yours), who looked at what their parents got out of the system in forming those aspirations. The bottom line is that baby boomers did very much better than they "should have", and gen-X are set to do considerably worse than they "should do". And these two observations are directly linked in a number of ways.

I'm not offering any answer, but a very good book that explains why events have conspired hugely against our generation, very lucidly, is "The Pinch" by David Willetts. It is almost completely non-partisan in my view, though I suspect that may left of centre folks are not going to be able to abstract from the fact that a Tory wrote it.

True that

 

[The Don]

The Don, the only part of your post that stuck out for me is that you are too conservatively invested. At your age you should have a bigger chunk of money directly in the stock market and not be invested in "safer" things. You have to risk your money to get the good returns. Although maybe I'm unclear on just how safe you are being but if you have 20 more years to go you can definitely be more aggressive.

Anyway, you are way way ahead of most people from what I can tell. I think you might be surprised at where you end up if you keep doing this (e.g. with more money than you can spend).

All of the pension funds are invested in the stock market across a range of funds.

A major chunk is in "income and growth" funds but we also have emerging market and emerging technology funds. I have tended to diversify into Asia, Mrs Don into the Americas.

The one consistent is that the funds in general haven't done that great over the last 10 years (but then again neither have many major stock markets)


edited to add......

We used to have a fair amount of cash but we spent most of it on a house rather than leaving it in the bank

 

[The Don]

This part sounds like a comment on the inadequacy of welfare transfers you expect to receive (given certain contingencies). I don't know if that is really your position, however.

I find the idea that elderly people in need of social care should be able to keep (IE bequeath) freehold property and/or leave intact assets that generate an income stream above average income, and then still receive public provision of that social care, to be distastefully regressive.

No, I fully expect to have to sell all assets (including the house in which we live) to be able to afford long-term nursing care. The problem comes when that money is gone then the elderly person will likely be moved.

It's particularly difficult where one partner needs the care leaving the other in much reduced circumstances. I'm not saying that it shouldn't happen just that it's really tough when it does.

We're in the position that there are no relatives expecting an inheritance. I'd love to spend our last penny the second that we die but clearly it's not easy to do that.

I suppose the summary is that as well as saving for our pensions we also need to find a way to find the nursing care we're also likely to need.

 

[Francesca R]

Indeed, retirement provision (whoever provides it) includes paying for the remainder of life, and the approach to death (which sounds morbid). Complete peace-of-mind arises from securing a claim on an indefinite income stream sufficient to cover it all, bearing in mind that the base case is for the health-care costs to increase quite sharply the older one gets. But that scenario would mean that one dies bequeathing a very large fund of assets.

My detached, dispassionate view of this is that public assistance in retirement should all be means-tested against assets and income, which would basically mean that one needs to become poor first before attracting anything in the form of state pension, the remaining universal elderly welfare benefits in existence, and social care.

Those who favour progressiveness in the redistribution of income ought to agree with that, but it is in fact a politically hard policy framework to sell, because the observation that the state is compelling elderly/increasingly frail people to become poor before helping them appears undignified to put it mildly and disgusting to put it as it is more commonly viewed. It is, however, the way a progressive welfare state generally should work.

 

[!Kaggen]

With the high heating and living cost. I reckon the solution is to work in the Europe and retire in Africa . At least the lions will help you out when you have run out of options.

 

[Jaggy Bunnet]

Indeed, retirement provision (whoever provides it) includes paying for the remainder of life, and the approach to death (which sounds morbid). Complete peace-of-mind arises from securing a claim on an indefinite income stream sufficient to cover it all, bearing in mind that the base case is for the health-care costs to increase quite sharply the older one gets. But that scenario would mean that one dies bequeathing a very large fund of assets.

My detached, dispassionate view of this is that public assistance in retirement should all be means-tested against assets and income, which would basically mean that one needs to become poor first before attracting anything in the form of state pension, the remaining universal elderly welfare benefits in existence, and social care.

Those who favour progressiveness in the redistribution of income ought to agree with that, but it is in fact a politically hard policy framework to sell, because the observation that the state is compelling elderly/increasingly frail people to become poor before helping them appears undignified to put it mildly and disgusting to put it as it is more commonly viewed. It is, however, the way a progressive welfare state generally should work.

Is there not also a moral hazard in that there is a very much reduced incentive for anyone to provide for their own pension (as you would be to a large part simply replacing what the state would provide) which perversely may increase the overall cost as people spend their cash and rely on the state to provide everything. Might be good news for the cruise industry though!

 

[Francesca R]

I really can't see why there would be more of a call on public money if retirement benefits which are currently universal became less so. And state provision is unlikely to satisfy those who have the means to save for better.

If the result was that everyone spent more of their accumulated earnings and left less to their children or the cats home, I don't think there is any problem with that either. But I wouldn't expect such a result.

 

[Jaggy Bunnet]

I really can't see why there would be more of a call on public money if retirement benefits which are currently universal became less so. And state provision is unlikely to satisfy those who have the means to save for better.

If the result was that everyone spent more of their accumulated earnings and left less to their children or the cats home, I don't think there is any problem with that either. But I wouldn't expect such a result.

Not all retirement benefits are currently universal, some are means tested. Make it all means tested and you disincentivise a big chunk of the population from making any attempt to save (as there is zero benefit to them in doing so).

 

[theprestige]

Ideally, you're generating (and saving) enough surplus wealth during your productive years, to support yourself during your unproductive years. With some luck, you might even have enough surplus to stop producing while you're still in your productive years.

If that's not the case, there are a couple options. One is to find someone else who is producing enough surplus to support the both of you, and take some of their surplus for yourself. This can be justified with varying degrees of ethical validity, through a wide range of rationalizations. Choosing the optimal rationalization is left as an exercise to the reader.

The other option is probably to produce until you can't produce anymore, then live until you can't live anymore.

 

[The Don]

My detached, dispassionate view of this is that public assistance in retirement should all be means-tested against assets and income, which would basically mean that one needs to become poor first before attracting anything in the form of state pension, the remaining universal elderly welfare benefits in existence, and social care.

I'm nominally left-wing but I agree 100% w.r.t. the means-testing of state retirement benefits. My Father has a decent occupational pension (30/80ths of final salary on the teachers' pension scheme) and yet still receives the state pension, winter fuel allowance, free TV licence, free bus travel and so on.

The key to this however is the decent occupational pension. The almost universal move in the private sector from defined benefits to defined contributions schemes combined with individuals' lack of responsibility in saving for their retirement has meant that very few of my contemporaries will end up with a decent occupational pension. This is exacerbated by the usual factors (poor investment returns, poor annuity rates, swingeing management fees, under-performing funds). IMO the financial services industry view pension funds as some kind of milch cow to be milked as heavily and frequently as possible.

Employers' decisions are understandable, they have managed to eliminate cost , and more importantly risk from their operations by making the pensioner carry the risk instead. It is to the shame of us employees that we allowed this to happen (while failing to notice that, by and large, senior people's pension provision was being very well looked after). We can't blame the employers, they were keeping their half of the bargain, they are running the company as efficiently as they can get away with.

So back the original point, one reason why the state pension (and Social Security in the case of Mrs Don) doesn't figure in our retirement plans is that we hope to have sufficient income in retirement that we no longer qualify for it. My fear is that so few people will have made adequate provision for their retirement that the savings from means testing will be much smaller than anticipated.

 

[The Don]

Ideally, you're generating (and saving) enough surplus wealth during your productive years, to support yourself during your unproductive years. With some luck, you might even have enough surplus to stop producing while you're still in your productive years.

If that's not the case, there are a couple options. One is to find someone else who is producing enough surplus to support the both of you, and take some of their surplus for yourself. This can be justified with varying degrees of ethical validity, through a wide range of rationalizations. Choosing the optimal rationalization is left as an exercise to the reader.

The other option is probably to produce until you can't produce anymore, then live until you can't live anymore.

Good luck generating that kind of surplus as an unskilled worker on (close to) minimum wage. Heck, Mrs Don and I have good income and low expenses and we've found it close to impossible to do.

This devil-take-the-hindmost generated the kind of inequality which prompted the establishing of the welfare state in the first place.

 

[Pixel42]

I'm nominally left-wing but I agree 100% w.r.t. the means-testing of state retirement benefits. My Father has a decent occupational pension (30/80ths of final salary on the teachers' pension scheme) and yet still receives the state pension, winter fuel allowance, free TV licence, free bus travel and so on.

I'm a lifelong socialist so I'm sympathetic to the view that all such benefits should be means tested, but even I have a little voice at the back of my mind that insists it isn't fair for me to have paid national insurance all my life and get absolutely nothing in return.

I will be starting to draw my company pension in a few months. I was in final salary pension schemes for 32 years and also paid AVCs for 12, so I will have sufficient income to live comfortably plus a decent tax free lump sum which I will mostly use to improve my property (e.g. replacing my 20-year-old boiler and disintegrating garden fences) so that it shouldn't need further significant maintenance for many years. It will be nearly 5 years before I qualify for the state pension (I'll be paying national insurance on my pension until then), and I don't anticipate having any need for it as far as living costs are concerned. I will probably bank it to pay for long term nursing care when I eventually need it.

 

[The Don]

I'm a lifelong socialist so I'm sympathetic to the view that all such benefits should be means tested, but even I have a little voice at the back of my mind that insists it isn't fair for me to have paid national insurance all my life and get absolutely nothing in return.

The problem here is that National Insurance has been misnamed. There is an expectation that the money has in some way ring fenced or even salted away somewhere. Instead it has just contributed to the general taxation fund.

Another way of looking at it is that it is an Insurance scheme. Because you have excellent pension provision you don't need it. Instead the pension money can go to someone who needs it more.

I will be starting to draw my company pension in a few months. I was in final salary pension schemes for 32 years and also paid AVCs for 12, so I will have sufficient income to live comfortably plus a decent tax free lump sum which I will mostly use to improve my property (e.g. replacing my 20-year-old boiler and disintegrating garden fences) so that it shouldn't need further significant maintenance for many years. It will be nearly 5 years before I qualify for the state pension (I'll be paying national insurance on my pension until then), and I don't anticipate having any need for it as far as living costs are concerned. I will probably bank it to pay for long term nursing care when I eventually need it.

That's excellent and heartening news. If only more people in the private sector had access to defined benefits schemes then more people could look forward to a retirement like yours.

Instead our inadequate funds are left to the mercy of the spivs and mountebanks that make up a significant proportion of the financial services industry.


Note: Spivs and mountebanks are in all industries, it's just that we are talking about the financial services industry at the moment
Note2: As an individual you can take some steps to minimise exposure to spivs and mountebanks but you cannot eliminate it entirely. One of my company pensions (defined contributions) charges a 7% management fee. I would take the money out but it's a now a nominal sum in there and the transfer value is just over 50% of the fund value.

 

[Francesca R]

Not all retirement benefits are currently universal, some are means tested. Make it all means tested and you disincentivise a big chunk of the population from making any attempt to save (as there is zero benefit to them in doing so).

Surely that depends on the means test itself, and what effective tax rate it places on saving. Any retirement benefit at all (universal and means tested) reduces the incentive to save voluntarily, but leaving people to sink or swim is normally regarded as not acceptable. It is possible to structure means testing so that you are always better off with voluntary saving than without (the effective tax rate stays well below 100%)