How long will your savings last?

Stubod

Ref "personal" inflation. I have been keeping "accounts" for the last 26+ yrs (sad), and our overall inflation over all that time has averaged out at less than 1% per yr....(don't know how, but it is fact). (Last year we spent the same as we did 26 years ago in "actual" terms..ie about £23.5k in 1990, and about the same last year..its probably shopping at Aldi!).

LXdaddy

If I understand the OP I think that he is saying
If I have capital of £600,000 and expect to live for 30 years and I expect the interest I can earn on the capital is the same as inflation; then I can withdraw £600,000/30 = £20,000 per year in real terms and I will exhaust my capital in 30 years exactly.

Assuming that you can consistently find returns that match the current year's inflation MIGHT be possible.

But the flaw in the plan is determining the date on which you die.

None of us can come up with the precise date on which we die (leaving aside those in terminal illness and a plan to visit Switzerland real soon)

Average life expectancy rates are available but each individual is not the average.

According to http://visual.ons.gov.uk/how-long-will-my-pension-need-to-last/ A man aged 60 has a 1 in 4 chance of reaching 94, a 1 in 10 chance of reaching 99 and some will reach 105 or more.

DaveMcG

Here is low level calculator that can be used to work out fund duration depending on various factors.

howlongwillmyfundlast.co.uk/Calculator2.html

Please_explain...

LXdaddy wrote: »

If I understand the OP I think that he is saying
If I have capital of £600,000 and expect to live for 30 years and I expect the interest I can earn on the capital is the same as inflation; then I can withdraw £600,000/30 = £20,000 per year in real terms and I will exhaust my capital in 30 years exactly.

Assuming that you can consistently find returns that match the current year's inflation MIGHT be possible.

But the flaw in the plan is determining the date on which you die.

None of us can come up with the precise date on which we die (leaving aside those in terminal illness and a plan to visit Switzerland real soon)

Average life expectancy rates are available but each individual is not the average.

According to http://visual.ons.gov.uk/how-long-will-my-pension-need-to-last/ A man aged 60 has a 1 in 4 chance of reaching 94, a 1 in 10 chance of reaching 99 and some will reach 105 or more.

"Assuming that you can consistently find returns that match the current year's inflation [I'm assuming a missing "that" here, though perhaps I'm misunderstanding] MIGHT be possible." No "MIGHT" about it, if you don't outlive your estimate you WILL NOT run out of money. I said in my original post that the government expect the average 65 year old to reach 86 and that you should allow longer and adjust if you realise it's wrong either way. Obviously you should base it on your health, wealth - not because of how long it will last but because the rich generally outlive the poor, location, family history and then allow extra to be on the safe side. I might get run over tomorrow and then all my planning and saving will have been a waste of time. As I suggested, if you've got to 95, say, you will be living a very different life by then. If you've run out of savings, though I said you should adjust your spending as time passes, then you still have the pension and it will be time for payback from the kids - not that I have any. You can downsize the home, you won't be driving, you probably won't be doing much at all, chances are you'll be in care. Realistically, chances are you'll be dead.


"None of us can come up with the precise date on which we die".. I knew someone who was poorly but not apparently at death's door who was overheard talking to someone who wasn't there - if you see what I mean - saying "No mate, not until Saturday" - you will have guessed that he died the following Saturday.


Hey, but at least you understood my point... Why did someone assume my aim was to run out of money on the day I die? All I want to do is be fairly sure the cash will not run out while I still need it, though if I get to be 100 I expect I'll be in a council run home watching Bargain Hunt and they'll take every penny of my pension to pay for it. Which is why 90 is more than enough thank you.

Goldiegirl

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 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.

It's a really poor state of affairs if someone feels awkward about posting on the pension board, because they feel they haven't got enough money.


Contrary to the way it looks sometimes if you read these boards, most people are of fairly modest means, and haven't got huge sums of money in a spread of investments and property etc.


From my point of view, I've never used a spread sheet for retirement planning.


Back in the 90's, I did predictions of savings growth etc, but I did it using paper, pen and a calculator. Not one of my extrapolations turned out remotely like what actually happened, and I managed to retire at 54 anyway. (and I'm not one of the super rich either, just a normal person)


We have savings - but I don't bother with calculating what may or may not happen with them, based on a set of variables which may never come to pass


We live comfortably (in our opinion) on our current indexed linked pensions


That's the bread and butter.


The jam is our state pensions and our savings.


My husband starts drawing his state pension in October, although I have to wait another 10 years.


At this point we don't need to draw on our saving for living expenses, so I don't feel the need to calculate how long they are going to last, if we draw £5000 a year or £10000 a year. Drawing from our savings is purely discretionary. If we felt the savings were dwindling, then we wouldn't draw money out for the 'jam' like a holiday. Fortunately, at this point our savings at this point would cover a lot of 'jam', so I don't foresee this happening at any time soon. In fact, we should be adding to our savings once my husbands state pension starts.


The only scenario where it would be necessary to draw on savings for living expenses, would be if I was left alone within the next 10 years, before my state pension started.


If that happened, I'd do more detailed calculations, but as my husband is hale and hearty, it's something that may never happen. But there's more than enough to withstand the equivalent of 10 years state pension


I'm different to most people on this board, as I'm not solely led by what it says on the spreadsheet. Although I take into account the financial information available, I prefer to go with what feels right.


It hasn't failed me yet

Linton

Goldiegirl wrote: »

......

From my point of view, I've never used a spread sheet for retirement planning.


Back in the 90's, I did predictions of savings growth etc, but I did it using paper, pen and a calculator. Not one of my extrapolations turned out remotely like what actually happened, and I managed to retire at 54 anyway. (and I'm not one of the super rich either, just a normal person)


We have savings - but I don't bother with calculating what may or may not happen with them, based on a set of variables which may never come to pass


We live comfortably (in our opinion) on our current indexed linked pensions


.......

If you have index linked pensions that meet your needs you dont need to plan. However you are in a minority, most people dont have generous index linked pensions and cant afford not to plan unless they want to risk having to live solely on the State Pension.

Please_explain...

Goldiegirl wrote: »

It's a really poor state of affairs if someone feels awkward about posting on the pension board, because they feel they haven't got enough money.

We live comfortably (in our opinion) on our current indexed linked pensions

Years ago, under a different name - I was so disillusioned I just gave up and went away - I posted a question [just seeking info, nothing contentious] which was never answered but developed into people telling me how I wouldn't be so poor if I really were an MSE and boasting about their buy to let properties and how much gold they'd bought.


When it comes to pensions and investments MSE is more like Money MAKING Expert; I've never been any good at that but reckon I must be a reasonable MSavingE having lived on about £4,000 pa for the last 18 years. And no, I don't claim any benefits but do pay council tax, mortgage, utilities, etc out of that, like everyone else here. When I start getting what I hope will be just under £8,000pa in state pension I'll be wondering how to spend it all.


I'm not seeking pity but from where I stand being able to live comfortably on index linked pensions, have savings you don't need to touch but can talk of taking 5 or 10k from each year, and still have two state pensions to look forward to sounds way beyond my most avaricious dreams.

Goldiegirl

Linton wrote: »

If you have index linked pensions that meet your needs you dont need to plan. However you are in a minority, most people dont have generous index linked pensions and cant afford not to plan unless they want to risk having to live solely on the State Pension.

I wouldn't say you don't have to plan - the position we find ourselves didn't just happen - it was a result of working all our lives and thinking about the future But, I think it's possible for people to get too tied up in their spreadsheets. It's not possible to cover EVERY eventuality in a spreadsheet

Please_explain... wrote: »

Years ago, under a different name - I was so disillusioned I just gave up and went away - I posted a question [just seeking info, nothing contentious] which was never answered but developed into people telling me how I wouldn't be so poor if I really were an MSE and boasting about their buy to let properties and how much gold they'd bought.


When it comes to pensions and investments MSE is more like Money MAKING Expert; I've never been any good at that but reckon I must be a reasonable MSavingE having lived on about £4,000 pa for the last 18 years. And no, I don't claim any benefits but do pay council tax, mortgage, utilities, etc out of that, like everyone else here. When I start getting what I hope will be just under £8,000pa in state pension I'll be wondering how to spend it all.


I'm not seeking pity but from where I stand being able to live comfortably on index linked pensions, have savings you don't need to touch but you can talk of taking 5 or 10k from a year, and still have two state pensions to look forward to sounds way beyond my most avaricious dreams.

I was actually being supportive of you - from where I stand, a lot of the figures bandied around on this board are beyond MY wildest dreams.


There's people on the old style board, who live on very little.


Generally, they don't understand the people on this board, and people on this board tend not to understand them.


Because I move between the two, I either feel very rich or very poor, depending on what board I'm on.


But I'm just an average person - My personal income at the moment is just over £8000 pa. I'm fortunate that I share expenses with my husband. His income is currently £10500. So we don't have a big income.


So we are by no means rich. We've been able to get savings behind us because we always worked full time and didn't have expensive things like kids.


This board is for the rich and not so rich. People shouldn't feel awkward about posting because they don't have a high income

Please_explain...

Goldiegirl wrote: »

I was actually being supportive of you

I realise that and appreciate it - I wasn't having a go at you.

AnotherJoe

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 in real terms.

Hmm, here's precisely what you did say, my emphasis:

So, now there's an alternative to buying an annuity I have been trying to work out how long my savings might last me in retirement, and I was beginning to think it was quite imponderable. For example, if I had £600,000 under the mattress (which I don't) and thought I might live another 30 years (which I won't) then I could blow £20,000 a year, right? ....

Not so...! For this wheeze to work you do have to make the assumption that the income from your savings will match the inflation rate: I don't think that's unreasonable, indeed it's probably pessimistic to think otherwise. I know savings rates are dreadful at the moment but inflation is all but zero too. When inflation rises so will interest rates. The canny MSE should always, alright, usually, be able to get a return that beats inflation even in nice secure building societies. (I still have accounts paying 4.5 and 4.7% and just this morning opened one paying 3%.)

You are using a figure of £600,000 not £10,000 against these inflation matching interest rates

So, after that too long preamble, my revelation was that, in the example above, you really could take £20,000 pa in real terms for exactly 30 years before the money ran out.

Well, no you you couldn't because you wont be getting inflation matching interest on £600,000.

If you wish to restate your argument at say £100,000 or better £50,000 please do so.

But your initial argument was not based on £10,000, it used £600k and inflation matching interest.

The key point being, these are very different conditions. Your argument, like Newtons laws on gravity, starts to fail above certain limits and is no longer correct at all, at high enough limits, its utterly wrong,as was your original argument.

If you wish to restate your argument for lower sums, by all means do so, but now you are changing the grounds of it. You started at £600k, and now its £100k plus state pension.

Thats fair enough, but its a different case and isn't relevant to your initial argument in any way.
remember you posted " If your savings rise with inflation and you take out an amount that also rises each year at a matching rate then it doesn't matter what inflation and rates do - high, low or wildly variable - your savings will last the same length of time."
But, for the example you posted, that doesn't work does it? And rather than admit that, you've made up a different scenario, one that doesn't appear in your first post at all and then bizarrely stated you based your argument on £100k or even £10k !! Your words are there to see