Bubble Warning from senior economist

mayonnaise

ILW wrote: »

Many people are not in a position of looking into complex investments, and with only a small ammout of capital charges would probably make it not worthwhile. Does not mean they should be punished though.

We all might want better returns on risk-free savings, but in the current climate, with base rate at 0.5% and low LTV loans around 2-3%, it's just not going to happen.
Actually, I'm surprised you can still get 2 to 3% nowadays on savings depending on ease of access.

IveSeenTheLight

antrobus wrote: »

I'd like to warn everyone of the dangers of the UK economy overheating. Of course, we are currently some way off from an overheating economy, but that's no reason not to start worrying about it.

I'd like to warn everyone of the dangers of crossing the road.

Some of us may not need to cross a road for some time, whilst others may need to do this more regularly.

The message is however, despite the risk of crossing a road at any given time, if you Stop, Look and Listen, you can mitigate the risks.

antrobus

IveSeenTheLight wrote: »

I'd like to warn everyone of the dangers of crossing the road.

Some of us may not need to cross a road for some time, whilst others may need to do this more regularly.

The message is however, despite the risk of crossing a road at any given time, if you Stop, Look and Listen, you can mitigate the risks.

Absolutely. The world is full of dangers. There are lots of nasty and not-so-nasty things that might happen. Sensible people take sensible precautions to (a) minimise the chances of them happening and (b) mitigate the cost incurred if they do happen. What we should absolutely not do is go around claiming that any warning of any particular danger is in fact a predicition that it will happen any time soon.:)

TruckerT

chucky wrote: »

It's not very interesting at all it's a fact.

The people that recouped their losses were probably the ones that took investment risks and definitely not the ones sitting on an Internet forum complaining that the global crisis and recovery wasn't distributed correctly.

Dare I suggest that the people who best recouped their losses were the ones who received the biggest taxpayer bailouts?

wotsthat wrote: »

Very few people need to spend 100% of their income in the UK

I wish I could understand what you mean...

TruckerT

wotsthat

TruckerT wrote: »

I wish I could understand what you mean..

You don't understand that very few people in the UK need to spend 100% of income or disagree?

TruckerT

wotsthat wrote: »

You don't understand that very few people in the UK need to spend 100% of income or disagree?

I genuinely don't understand what you are trying to say.

If it is true that very few people in the UK need to spend 100% of their income, then presumably that is because there are very few people who receive more than a living wage?

TruckerT

Loughton_Monkey

TruckerT wrote: »

I genuinely don't understand what you are trying to say.

If it is true that very few people in the UK need to spend 100% of their income, then presumably that is because there are very few people who receive more than a living wage?

TruckerT

I can't believe how you can be confused at all by this. The situation is extremely simple. Let's leave pedantics aside and just make an assumption that there are people (a couple, say) 'living' on £12,000 a year. A similar couple could well be bringing in £25K. Another will bring in £125K.

Now starting with the £12K pair, we can safely assume that they can spend 100% of their income because when they both retire, the state pension will continue to deliver roughly £12K inflation linked. Simple.

But the couple on £25K will also get £12K state pension, which means a 50% drop in spending ability unless they live on £23K and save the other £2K for later.

To the £125K couple, then they need to live on £100K to stand any prospect of maintaining their lifestyle after retirement.

Interpolate for anything in between, and take the above figures as purely rough, ready and illustrative.

Now tell me what is difficult to understand about that. It is basic mathematics. It is as certain as night follows day. [Lottery wins or inheritances apart].

So all Wotsthat is saying (and I also say rather too often) is that people have a clear choice. They can live on 100% of income, but if they do, severe consequences follow after retirement. And more importantly, it makes a mockery of anyone saying "Yes, I understand, but how do you expect me to live on £XX,000 a year?" It is the most common reaction, and also the most stupid and fatuous one. Because there is only one answer, and that is along the lines of "I can show you another million people who are living and do live on £XX,000 a year. All you have to do is live like them rather than ramp up your lifestyle to 100% of income because you choose to 'want it all now'."

TruckerT

Loughton_Monkey wrote: »

I can't believe how you can be confused at all by this. The situation is extremely simple. Let's leave pedantics aside and just make an assumption that there are people (a couple, say) 'living' on £12,000 a year. A similar couple could well be bringing in £25K. Another will bring in £125K.

Now starting with the £12K pair, we can safely assume that they can spend 100% of their income because when they both retire, the state pension will continue to deliver roughly £12K inflation linked. Simple.

But the couple on £25K will also get £12K state pension, which means a 50% drop in spending ability unless they live on £23K and save the other £2K for later.

To the £125K couple, then they need to live on £100K to stand any prospect of maintaining their lifestyle after retirement.

Interpolate for anything in between, and take the above figures as purely rough, ready and illustrative.

Now tell me what is difficult to understand about that. It is basic mathematics. It is as certain as night follows day. [Lottery wins or inheritances apart].

So all Wotsthat is saying (and I also say rather too often) is that people have a clear choice. They can live on 100% of income, but if they do, severe consequences follow after retirement. And more importantly, it makes a mockery of anyone saying "Yes, I understand, but how do you expect me to live on £XX,000 a year?" It is the most common reaction, and also the most stupid and fatuous one. Because there is only one answer, and that is along the lines of "I can show you another million people who are living and do live on £XX,000 a year. All you have to do is live like them rather than ramp up your lifestyle to 100% of income because you choose to 'want it all now'."

You cut your coat according to your cloth?

Unfortunately, it ain't that simple - we were led to believe that we would always have cloth, but these days it seems far from certain.

TruckerT

grizzly1911

wotsthat wrote: »

You don't need to be 'pretty well off' to have money to invest either. Very few people need to spend 100% of their income in the UK. I challenge anyone to take a look at their finances and not be able to identify how they could increase their savings ratio now or might have done so in the past with minimal impact on lifestyle. Yes they might choose to spend 100% income but that's free will - no point moaning on their behalf on an internet forum.

Remember no investments/ savings = no investment return. Guaranteed.

How many people get means tested benefit? Presumably we don't pay them benefit so they can save (at anything other than a rainy day level)?

Then their are those on a living wage who through there budgetary skill just mange to provide some rainy day savings. How many are in that category?

There will be more who can save but it will never really make a material difference to their retirement prospects - it may even leave them in the poverty trap?

I would suggest that there are quite a number who live at or very near their income simply because they don't have a choice.

There will be a substantial number of higher earners who choose to live to 100%+ of their average earnings.

Loughton_Monkey

TruckerT wrote: »

You cut your coat according to your cloth?

Unfortunately, it ain't that simple - we were led to believe that we would always have cloth, but these days it seems far from certain.

TruckerT

It is that simple.

Show me someone who's 'cloth' continually reduces every year. Year after year, for each and every one of his 40/45 year's economic life. This is an extremely rare event.

Show me someone who's 'cloth' fluctuates year on year. Has the odd bad year. Maybe even loses a job - and is unemployed for 9 months... This is a fairly common event. Or your income goes down 15%, then [like a good government] you have to try spending 15% less. If you can't, then next year when things are different and better, make it up a bit....

I am not alone in having monitored and "managed" my income and expense weekly, monthly and annually throughout my adult life. It isn't difficult. It is not rocket science. And yet so few people seem to do this with any degree of common sense.

There is no difference - in principle - in managing your finances than in navigating your sail across the Atlantic. You must check your progress and position almost every hour, and make adjustments to your "cloth" sails and your bearing, otherwise how the hell are you going to get to New York? Do this and the worst outcome is arriving a day or two late, but you'll get there.

What I see is people who set sail, on the right bearing, and then fail to 'manage' their position, fail to adjust the trim of their sails or their bearing. They whinge about a cruel wind that is probably blowing them off course. They are too ignorant to recognise that it is their own responsibility to manage where they are and where they are headed. And then eventually they wake up and find themselves drifting somewhere 1000 miles off the coast of Rio de Janeiro - loudly blaming the wind, the boat, the tide, and even bloody Poseidon. But they cannot see that simple frequent measurement and readjustment would have kept them almost perfectly on course.

I have never had what you might call 'certainty'. Who (apart from civil servants until recently) has? What we all have is the ability to manage our efforts at work, manage our experience and career, and the ability to have faith and confidence in our own abilities. Through good years and bad years.

There may well be circumstances (upbringing, education, geography, luck, personal attributes...) that determine - in round figures - that overall you will earn money that affords twice as good a standard of living as mine. This is life. But I guarantee that we can both retire early - at the same age - and both maintain our 'working/earning' standard of living into retirement. All it requires is simple financial/lifestyle management.