Bank of England DERANGED?!

dunstonh

So what are retired savers supposed to live on - fresh air? Interest rates are going far too low:eek:

Use investments. Planning your retirement provision using savings accounts carries a risk and this is one example of the risk. Every option has risks. The risks will vary from investment risk, inflation risk or shortfall risk. Going 100% into any one option carries risks.

Someone that is reliant on savings accounts to provide their income has planned badly. However, its often not too late to change things around.

Nick_C

Most people who think they were living off the interest from their savings were really living on their own capital. With interest rates at 7% gross and inflation at about 3%, the real return on capital was about 2.5% for basic rate tax payers - or £2,500 per annum for every £100,000 saved.

Interest rates have fallen, so has inflation. 4.75% gross (3.8% net for BRTPs) is still achievable, and if inflation falls to 1.3% then BRTPs are no worse off.

Lansdowne

Nick_C wrote: »

Most people who think they were living off the interest from their savings were really living on their own capital.

Can you explain what you mean by this?
To me, 'living off the interest' means they have the same in the bank at the end of the year that they started with.
If someone has £200k deposited and earning 7%, and they can live on £14k per year, they are 'living off the interest'. If interest rates have halved, they can no longer do so.

Reaper

melbury wrote: »

So what are retired savers supposed to live on - fresh air? Interest rates are going far too low:eek:

What really matters is interest rates compared to inflation. When both interest rates and inflation are high pensioners often live off just the interest in the mistaken belief they are leaving their capital intact, when it reality it is dropping in value (it buys less at the end of the year than it did at the start).

When both interest rates and inflation are low you can suppliment the interest by digging slightly into the capital and be no worse off. Only low interest rates coupled with high inflation would genuinely hit pensioners.

It looks like we are heading for a period of low or even negative inflation so your fears may turn out to unfounded provided you accept the concept your capital was shrinking before and is shrinking now.

In addition to that many savers who read these forums were savvy enough to grab fixed rates to insulate themselves for the next year.

RayWolfe

Ah, but what is that capital worth after the end of the year? You are forgetting inflation. £200,000 will not buy in 2009 what £200,000 would have bought in 1999.
Sorry, crossed with Reaper.

Oblivion

RayWolfe wrote: »

Ah, but what is that capital worth after the end of the year? You are forgetting inflation. £200,000 will not buy in 2009 what £200,000 would have bought in 1999.

Except perhaps a larger house when its real value becomes apparent and bottoms out

Biding my time and waiting to pounce.

Dave.

RayWolfe

OK fair enough, but what else have the Romans done for us?

dunstonh

Biding my time and waiting to pounce.

me too. Keep doing down is all I can say. Yes, mine is going down to but larger ones are going down by more

sabretoothtigger

Yea thats what Ive heard falling prices is a great time to move up the house chain apparently, because the money saved on the bigger house outweighs the loss on your own smaller house sale.
Not a massive positive but a plus side to things if you have this leeway to use



About purchasing power, spotted this recently which is what I thought happened. The uk is better off then 10 or 15 years ago

melbury

dunstonh wrote: »

Use investments. Planning your retirement provision using savings accounts carries a risk and this is one example of the risk. Every option has risks. The risks will vary from investment risk, inflation risk or shortfall risk. Going 100% into any one option carries risks.

Someone that is reliant on savings accounts to provide their income has planned badly. However, its often not too late to change things around.

It's all very well stating that, but shares are not exactly risk free investments and at least in savings accounts the money is still there at the end of each year - well hopefully it is!