How long will your savings last?

saver861

Malthusian wrote: »

Even if investments are going up by 4% a year they're not going up by 4% every year. The capital would be touched in any year in which the markets went down or grew by less than 4%.

Yes but the average will be more than 4%. A year where there is a downturn then it could be minus anything up to 40%, or more depending on how bad it is. Thus you would then need to consider when you start drawing from the original investment date. If you invested in 2007 and withdrew 4% each year then I'm guessing you would be in minus territory for a long time!

Malthusian wrote: »

- the combination of a high withdrawal rate and a falling market can have a devastating effect on the capital. I believe the idea behind the 4% rule of thumb is that it's low enough to be sustainable even if you are unlucky with the timing of investment returns.

As above, £100k invested in 2007 subjected to average falls in 2008 onwards and with an annual withdrawal would take a number of years to get back to the £100k, never mind make profit.

But that's the reason why I personally won't be heavy in any medium or higher risk investments 20 years from my life expectancy date. I will of course be looking to ensure my money is still bringing in at least 2% above inflation to see out the final years. My aim is that my last cheque bounces!

aldershot

westv wrote: »

It's interesting to see such a simple and straightforward idea get debated to 3 pages so far.

Hmmm. Have to agree. You should really have an idea about real and nominal returns, withdrawal rates, longevity, life expectancy, risk adjusted returns etc before using anything but the most simple pension products IMHO.

Lots of talk about 5% interest rates and 4% withdrawal rates too.

5% interest rates are not available except for tiny amounts in current accounts, not pension funds. Base rate is 0.5%. 20 year gilts yield 2.13%. Base cash returns on those numbers.

Historically, guaranteed real returns were positive but they are now negative and they may stay that way for many many years. That is what financial repression does for you. 4% is almost certainly too high a withdrawal rate in the current environment. Somewhere between 2 and 3% is probably a safer number if you have a mixed bond and equity portfolio and have the wherewithal to vary it according to returns. Look at Japan for what an equity market can do over a long period.

AnotherJoe

westv wrote: »

It's interesting to see such a simple and straightforward idea get debated to 3 pages so far.

"For every complex problem there is an answer that is clear, simple, and wrong."
H. L. Mencken

HappyMJ

aldershot wrote: »

Hmmm. Have to agree. You should really have an idea about real and nominal returns, withdrawal rates, longevity, life expectancy, risk adjusted returns etc before using anything but the most simple pension products IMHO.

Lots of talk about 5% interest rates and 4% withdrawal rates too.

5% interest rates are not available except for tiny amounts in current accounts, not pension funds. Base rate is 0.5%. 20 year gilts yield 2.13%. Base cash returns on those numbers.

Historically, guaranteed real returns were positive but they are now negative and they may stay that way for many many years. That is what financial repression does for you. 4% is almost certainly too high a withdrawal rate in the current environment. Somewhere between 2 and 3% is probably a safer number if you have a mixed bond and equity portfolio and have the wherewithal to vary it according to returns. Look at Japan for what an equity market can do over a long period.

I would be very dissatisfied with 2.13%. None of the money I have has such low returns.

Exactly how much is tiny amounts? I didn't think we had what would be considered tiny amounts and I do average 5% returns.

bigfreddiel

Please_explain... wrote: »

Oh, well pardon me for not meeting your exacting standards - clearly not everyone is as perfect as you.


A lot of the length was to fend off morons who would make the wrong argument - it clearly didn't work. And being as concise as your post leads to utter nonsense - taking 4% would make a lot of sense if you were 100 years old or inflation were 25% or ...

This is giving me a real good laugh, especially the bit about morons, but basically it's all complete cobblers innit! fj

saver861

bigfreddiel wrote: »

This is giving me a real good laugh, especially the bit about morons, but basically it's all complete cobblers innit! fj

Moron's on MSE? Really? Where, where where?

Actually, come to think of it ... there is ****** ... and there is *** ****** .... and ** ******** .... and to top them all there is .. **** ****

Dearie me, that lot give morons a bad name!!!

AnotherJoe

Please_explain... wrote: »

Jeez, I was allowing for some common sense from the reader. All I'm saying is that if you can get a return that matches inflation from whatever you choose to invest in you can take a set cut of your capital each year in real terms for a number of years of your choosing. It doesn't matter a fig if it's £10,000 or £600,000

Of course it matters a fig. You cannot get a return that matches inflation from £600k. So why keep mentioning it? If you wanted "common sense", why use a number that patently doesnt work in your examples? Repeatedly.

Had you said "this will work for amounts up to about £40-£50k" you'd have had a point.

Above those sort of numbers, what you suggested Does.Not.Work. Tha'ts the point.
Why are you so unwilling to accept that?

justwantedtosay

AnotherJoe wrote: »

Of course it matters a fig. You cannot get a return that matches inflation from £600k. So why keep mentioning it? If you wanted "common sense", why use a number that patently doesnt work in your examples? Repeatedly.

Had you said "this will work for amounts up to about £40-£50k" you'd have had a point.

Above those sort of numbers, what you suggested Does.Not.Work. Tha'ts the point.
Why are you so unwilling to accept that?

I've been reading MSE forums for a while but never bothered posting before but I thought I'd stand up for the OP if he or she really has given up on you.The gist of what he/she said is undoubtedly right - it's pretty basic arithmetic. Not sure I'd follow their investment advice but there's no denying the sums.

What is there in the quote you cite that precludes matching inflation on £600,000? He/she doesn't say it's got to be in a basic instant access account though even some of them match inflation at the mo. Surely by retirement someone, even more certainly a couple, could have put away most or all of that sum in various better-than-basic accounts and I'd hope any fund manager would expect to at least match inflation over time if they want to stay employed. A couple retiring in a few years' time could have hundreds of thousands in cash ISAs alone by then. (Can you now transfer all your S&S ISAs into cash ones? They had higher limits didn't they? Wouldn't swear to it though!) Even I have several times the sum you suggest as the maximum possible spread around a variety of building societies all earning way above inflation. I think it's you who needs to accept that you're wrong. Have a beer, relax, life's too short.

bigadaj

justwantedtosay wrote: »

I've been reading MSE forums for a while but never bothered posting before but I thought I'd stand up for the OP if he or she really has given up on you.The gist of what he/she said is undoubtedly right - it's pretty basic arithmetic. Not sure I'd follow their investment advice but there's no denying the sums.

What is there in the quote you cite that precludes matching inflation on £600,000? He/she doesn't say it's got to be in a basic instant access account though even some of them match inflation at the mo. Surely by retirement someone, even more certainly a couple, could have put away most or all of that sum in various better-than-basic accounts and I'd hope any fund manager would expect to at least match inflation over time if they want to stay employed. A couple retiring in a few years' time could have hundreds of thousands in cash ISAs alone by then. (Can you now transfer all your S&S ISAs into cash ones? They had higher limits didn't they? Wouldn't swear to it though!) Even I have several times the sum you suggest as the maximum possible spread around a variety of building societies all earning way above inflation. I think it's you who needs to accept that you're wrong. Have a beer, relax, life's too short.

What accounts are you using that beat inflation significantly currently?

Current accounts can do it up to low to mid five figure sums for an individual, but you seem to be saying you are using building society savings accounts?

mgdavid

The thread title states 'savings' alone.
I wonder whether the OP appreciates the essential difference between savings and investments?