How long will your savings last?

HappyMJ

Stubod wrote: »

I have been running an "early retirement" spreadsheet that can factor in various inflation and savings rates for comparison. There is also information on the web that shows the comparison between historical inflation v savings rates. (http://swanlowpark.co.uk/savingsinterestannual.jsp). This shows that there have been periods of interest higher than inflation, and t'other way 'round. I am not sure if there is a "natural" link between inflation and interest rates, but I guess that they are never that far apart? So I agree with the first post, however to hedge my bets (and play safe), I base my long term plans on 1% interest and 3.5% inflation.

1% interest....is that all? I base my short term returns on 5% and my long term returns on 7.5%.

Why not use a higher rate of return? It's very easy to earn 3% interest on cash deposits with very little effort. Santander's 123 Accounts pays 3% on amounts up to £20,000 each. Open 3 accounts between 2 people and that's £60,000 sorted.

There's a little more effort involved but it's possible to earn an average of 5% on up to around £130,000 shared between a couple with little risk. We now have 12 regular savers earning between 5 and 6% with one maturing each month. The funds go towards the others then we open a new one every month and pocket the interest.

Tesco's 5 year fixed rate pays 2.5% if you needed to save even more....but if you had that much then taking some risk with the extra is worth doing. I own an investment property and that makes 7.5% per year inclusive of 5% gross rent received less rental expenses plus capital growth less future capital gains tax. Stocks and shares are also a good choice to improve returns.

Please_explain...

AnotherJoe wrote: »

The issue is, it's a highly unrealistic example that invalidates your conclusions. You have said "look I can get 5% in savings account" and therefore live on 5% of £600k which is fine as long as you can subsist on 5% of whatever limited sum you can have in that account which is most definitely not £600k

You have said "look I can get 5% in savings account" and therefore live on 5% of £600k - THAT'S PRECISELY WHAT I DIDN'T SAY!!!!! I'm saying that if I had £10,000 and expected to live 10 years I could spend £1,000 each year in real terms.


Yes, £600,000 was too high a figure and I actually wrote my piece with £300,000 as the example but doubled it just to make the grocery bill point as I thought the figure was too low. I wish I hadn't as most of the argument here seems to have turned into a debate about where to invest large sums which wasn't the point and, sadly, doesn't concern me. £300,000 is still much more than I have but I didn't want you all to mock me for being poor. I'm guessing it's also more than very many people have when they retire. My ramblings were more aimed at people with a limited amount of savings and a state pension and worrying, like I was, about every penny they spend fearing it increased the risk of running out of money.


You also wrote, "You can't live on 5% of £100k". I would contend that an OAP couple each with a state pension - remember they get one each now - and no mortgage could live not too shabbily on those pensions plus 5k. I expect to have about £15,000 net pa in real terms and know I will be comfortable enough on that, though all you folk who invest in property and suchlike will see that as utter poverty. It's an awful lot more than I'm currently living on and have been for the last decade and more.

Please_explain...

Eco_Miser wrote: »

Your assumptions are OK for a first estimate, and how I decided I could afford to retire, BUT actually beating, or equaling, inflation using bank or building society accounts for the sort of money that will fund a nice, long, retirement over the duration of that retirement seems infeasible. Living to 120 is unlikely, but not unknown.
Yes, I remember getting 10% in regular savers, and even more than that, but only on comparatively small amounts.
That's why the majority of my money is in investments whose dividends should be sufficient for my needs, so the price doesn't matter much. My pensions should also be sufficient for my needs, so that's needs covered twice over, so can spend nearly half on wants as well.

Unless you believe the bible is a true story only tiny number of people - quite possibly in single figures - have ever lived to 120, none in Britain. Most of the tales are fiction. You can safely discount the possibility.


I remember my first TESSA paid 14.5%

HappyMJ

Please_explain... wrote: »

You have said "look I can get 5% in savings account" and therefore live on 5% of £600k - THAT'S PRECISELY WHAT I DIDN'T SAY!!!!! I'm saying that if I had £10,000 and expected to live 10 years I could spend £1,000 each year.

That's assuming you get an interest rate of 0%.

You could spend £1,300 per year at £25 per week and the fund would last slightly more than 10 years with interest rates set at 6%. That would be assuming you take advantage of every account earning 6% or more with a current account holding your day to day spending money.

Please_explain...

redpete wrote: »

...and hope that your opinion on future interest rates is correct and that institutions setting fixed savings rates haven't already taken this into account.

Which I suggested in the very next part of the quote you so conveniently edited.

Please_explain...

HappyMJ wrote: »

That's assuming you get an interest rate of 0%.

You could spend £1,300 per year at £25 per week and the fund would last slightly more than 10 years with interest rates set at 6%. That would be assuming you take advantage of every account earning 6% or more with a current account holding your day to day spending money.

You're really not getting this are you! You could probably spend as you suggest (though I doubt you could get 6% on cash) but if we have a spell of very high inflation £1,300 won't be worth a lot in ten years. I'm not assuming 0% interest, I'm assuming that returns, whether interest, dividends, rent, capital gains, the value of your stash of gold, investment property, fine wines, boxed vintage Corgi 'toys', or whatever, will simply match inflation, which, again, I think is a safe bet.

Stubod

HappyMJ wrote: »

1% interest....is that all? I base my short term returns on 5% and my long term returns on 7.5%.

Why not use a higher rate of return? It's very easy to earn 3% interest on cash deposits with very little effort. Santander's 123 Accounts pays 3% on amounts up to £20,000 each. Open 3 accounts between 2 people and that's £60,000 sorted.

..I agree, and we do already have 3 Santander 123's, (long may they continue), and our current "overall" interest rate is currently running at about 3%. But I like to work on "worst case" pessimistic figures, (otherwise may run out of money too early?). Looking at the historical figures for interest v inflation there was a relatively long period in the 70's and early 80's where inflation was really high, and interest rates lagged way behind. (Inflation at 22%, savings at 7.5%).

Please_explain...

Stubod wrote: »

I have been running an "early retirement" spreadsheet that can factor in various inflation and savings rates for comparison. There is also information on the web that shows the comparison between historical inflation v savings rates. (http://swanlowpark.co.uk/savingsinterestannual.jsp). This shows that there have been periods of interest higher than inflation, and t'other way 'round. I am not sure if there is a "natural" link between inflation and interest rates, but I guess that they are never that far apart? So I agree with the first post, however to hedge my bets (and play safe), I base my long term plans on 1% interest and 3.5% inflation.

Thanks for the link. I think you're being pessimistic assuming 1% interest and 3.5% inflation. The graph you linked to shows that returns have nearly always beaten inflation and those were just instant access accounts for the most part. I'm even more confident of my plans now.

Please_explain...

Stubod wrote: »

.. Looking at the historical figures for interest v inflation there was a relatively long period in the 70's and early 80's where inflation was really high, and interest rates lagged way behind. (Inflation at 22%, savings at 7.5%).

That's instantly spoilt the reply I wrote to you while you were writing that! Though, as I said, I remember there were accounts paying very much more than 7% back then. Then again, though inflation hit 25% I don't recall savings rates ever reaching such heights so there's a flaw in my theory if that ever happens again. Mind you, for the last several years returns have comfortably beaten inflation, so perhaps they balance out over the long term. I'm hoping the poster who reckoned his personal inflation rate was 7% has an unusual lifestyle! I'm sure mine is much lower. I'm paying less for insurance than I was ten years ago, council tax here just had its first increase in five years [though I fear more to come], food is cheaper, especially as a Lidl has opened within walking distance, water's rising alarmingly as my supplier has ditched its low user rate but gas and electricity are lower thanks to MSE.com's bulk rate.

HappyMJ

Please_explain... wrote: »

You're really not getting this are you! You could probably spend as you suggest (though I doubt you could get 6% on cash) but if we have a spell of very high inflation £1,300 won't be worth a lot in ten years. I'm not assuming 0% interest, I'm assuming that returns, whether interest, dividends, rent, capital gains, the value of your stash of gold, investment property, fine wines, boxed vintage Corgi 'toys', or whatever, will simply match inflation, which, again, I think is a safe bet.

We get 6% on the money held in our First Direct, Marks and Spencer and HSBC regular savers. With an investment term of 10 years there is no need to have "all" of the cash held in easy access accounts. 90% of the cash can be invested in longer term accounts whether that's 1 year or 5 years or somewhere in between.

With 6 accounts between 2 people with one maturing every 2 months that takes care of £5,000.

Some of the money can also be invested in riskier investments to earn more money. I would assume on that level of capital that any state pension payable is paid into a current account and used to primarily live off with £25 drip fed every week into the current accounts from the savings accounts.