Rubbish BBC article - "Pensioners could run out of cash"

gadgetmind

Here it is.

http://www.bbc.co.uk/news/business-30750179

Age UK are mostly to blame but the BBC have printed this low grade data without any worthwhile comment.

"The charity based its calculations on a 65 year-old who has built up a pension pot of £29,000."

Hmmm, so a very small pension pot. What's the average, closer to £60k? With only £29k in there, and assuming a 45 year working life, that's only around £50 a month even assuming close to zero growth.

"It assumed that the pot increases in value by 3% a year."

OK, so growth at the low end, but that's OK.

"On that basis, it said someone withdrawing £3,000 a year from the fund would run out of money by the time they were 75."

Ah, so someone can't withdraw more than 10% of their savings for much more than 10 years? Well, who'd have thought!

"Withdrawing £2,000 a year would mean the savings pot would disappear by the age of 81."

That's still nearly 7% pa. How about all concerned try again with contributions that match income aspirations and avoiding a drawdown strategy that even the most numerically challenged must realise is doomed to fail.

dunstonh

Ah, so someone can't withdraw more than 10% of their savings for much more than 10 years? Well, who'd have thought!

This is where most of these scare articles fall down. And for those that are scared their money could run out either through investment returns or their own poor judgement, then there is the perfect product for them. It is called Annuity.

hugheskevi

Indeed, what great research - that if you save a trivial amount over your lifetime, spend it far more rapidly than sustainable, then it won't last your expected lifetime.

Shame, as there are plenty of interesting studies that could be done to highlight the importance of investing appropriately in the early stages of decumulation, in case there is a significant market correction. Alternatively, dealing with longevity risk is going to be something people need to know a lot about if they do not want to purchase an annuity and do not have large resources to fall back on in the event they live longer than expected. How the uncertain possibility of needing to fund long-term care can be dealt with would also be a useful article.

For me, the interesting group is not those with lots of retirement sources (who will be fine whatever they do), nor those with trivial resources (they failed before they began, the decumulation phase offers no solution). It is the group with adequate but modest retirement resources I think present the most interesting challenges - for this group balancing investment, longevity and health/care risks is not at all easy. So far from being concerned about pots being blown in a year or two (which will happen in a few cases, but most aren't that stupid) I think far more concern should be about pots being exhausted after 15-20 years. I am far from convinced that the guidance guarantee will be of any use for this group and I'm sure that in 15 years or so there will be plenty of stories along the lines of 'I did what the guidance said, withdrew at x% each year (and never reviewed that, regardless of what happened, and sometimes took more due to unexpected expenditure), but now the pot is nearly gone, who is to blame?' type of questions.

These sort of articles are always amusing to read the comments made about the article. Looking at the top 3 best-rated comments shows the following:

(1) No UK stock market growth for 15 years, almost no interest paid on savings, so how is anyone on even a half decent wage suppose to end up with a pension fund they can actually live on ?

Not as bad as the other comments, but ignores dividends and all other investment markets, makes an irrelevant reference to interest during accumulation phase and deliberately makes a comparison to top of the market.

(2) Surely it is far better for me to take the cash and invest it as one whole amount in ISAs with no management charge.

So pointlessly comparing pension investments with cash ISAs where the charges are implicit.

(3) Pensioners are well down the pecking order;

£114bn out of DWP total spend of £168bn (68%) spent each year on pensioners, the group that have fared best through the recession, above inflation State Pension increases most years, and yet still the poor old pensioner is 'well down the pecking order'...surprised there wasn't the standard picture of an old lady next to an electric fire and a reference to choosing between heating or eating

kidmugsy

gadgetmind wrote: »

a drawdown strategy that even the most numerically challenged must realise is doomed to fail.

You clearly have no idea just how numerically challenged the most numerically challenged are.:)

chucknorris

I know that this is lazy and I should simply do my own spreadsheet but has anyone got a feel for what a safe(ish) drawdown % is? Obviously as well as the duration where your money is invested/saved is important too, so it becomes very subjective.

Based upon the best annuities quotes that I found that are inflation linked paying around 4.0- 4.2% (which includes the providers risk and overheads and profit) I tend to use 4.5% to last from 65 to 90. So about 25 years, it won't be critical to us (we probably will not be able to spend everything, which is a good problem to have) but I still like to estimate our retirement income from 65 years old and I tend to use 4.5% as a guestimate.

le_loup

kidmugsy wrote: »

You clearly have no idea just how numerically challenged the most numerically challenged are.:)

Indeed. But you only need to be a member of these forums for a day to see just HOW numerically challenged MOST visitors here are ... and they are interested enough to be looking!

patanne

Well I am hoping that the "rubbish BBC article" scares a few people that really should not be in control of their own pensions into taking an annuity. After all if they had any idea about pensions they would already have known what was possible or would have consulted an IFA.

The whole thing just strikes me as yet another attempt at grabbing a few votes. It will cost the rest of us dearly when their money runs out and will be just another stick to beat my generation with.

ETA Just what le loup says!

Dunnit

chucknorris wrote: »

I know that this is lazy and I should simply do my own spreadsheet but has anyone got a feel for what a safe(ish) drawdown % is? Obviously as well as the duration where your money is invested/saved is important too, so it becomes very subjective.

Based upon the best annuities quotes that I found that are inflation linked paying around 4.0- 4.2% (which includes the providers risk and overheads and profit) I tend to use 4.5% to last from 65 to 90. So about 25 years, it won't be critical to us (we probably will not be able to spend everything, which is a good problem to have) but I still like to estimate our retirement income from 65 years old and I tend to use 4.5% as a guestimate.

Annuities have to pay out for an indeterminate time and through hell and high water. You can afford to take more risks/withdraw slightly more money assuming you do not over drain your funds if share prices are low.

Linton

chucknorris wrote: »

I know that this is lazy and I should simply do my own spreadsheet but has anyone got a feel for what a safe(ish) drawdown % is? Obviously as well as the duration where your money is invested/saved is important too, so it becomes very subjective.

Based upon the best annuities quotes that I found that are inflation linked paying around 4.0- 4.2% (which includes the providers risk and overheads and profit) I tend to use 4.5% to last from 65 to 90. So about 25 years, it won't be critical to us (we probably will not be able to spend everything, which is a good problem to have) but I still like to estimate our retirement income from 65 years old and I tend to use 4.5% as a guestimate.

Have a play with firecalc. It is US based but it is still applicable. Steadily drawing down 4.5% of the initial pot size is possibly a lttle high to safely achieve an inflation matching return but if you are prepared to raise and lower your drawdown based on market conditions your money will last much longer.

gadgetmind

My current plans are for a 4.4% drawdown between ages 55 and 67 and then a 3.4% drawdown once SP kicks in.

Even this has an element of risk!

dunstonh

Remember that the state pension has indexation and generally, people spend less as they get older. So, you have to consider whether indexation is a sensible thing to include or not. It all comes down to spending habits. both now and future.