How long will your savings last?

sandsy

I think you've hit the nail on the head there mgdavid.

This thread shows the 'advice gap' and it's about terminology:
- savings vs investments
- interest vs returns
Etc

I find it disappointing that instead of realising that the OP had a lightbulb moment on the maths of returns and drawdown rates, the majority of the forum found it more entertaining to attack the OP's lack of investment terminology and tried to tie him/her up in knots.

greenglide

I wonder whether the OP appreciates the essential difference between savings and investments?

My interpretation of the opening post is that the OP was talking about savings and that he is making a case for savings interest rates being consistently equal to or higher that inflation.

Under that proposition he then arrives at the conclusion that a pot of £10,000 will provide an income of £500 pa for 20 years (substitute other numbers as required).

Which is fine as long as inflation and interest rates stay low.

justwantedtosay

greenglide wrote: »

My interpretation of the opening post is that the OP was talking about savings and that he is making a case for savings interest rates being consistently equal to or higher that inflation.

Under that proposition he then arrives at the conclusion that a pot of £10,000 will provide an income of £500 pa for 20 years (substitute other numbers as required).

Which is fine as long as inflation and interest rates stay low.

To answer another question first, our accounts are mostly ISAs, which don't pay the premium they used to but are at least tax free, and notice or fixed rate accounts, and yes whatever replaces the fixes when they mature will not be as good, some are old variable accounts that are no longer available to new customers but have no restrictions on new deposits and pay over 2%, which I know is not a fortune but is better than inflation, yet others are loyalty accounts paying more than average. All together they comfortably beat inflation at present. I don't bother chasing regular savings accounts any more as, to me, they aren't worth the hassle. Bank of India, I think it was, gives about 3% on a long fix to existing customers. Yes, that's a bit of a gamble but as not a much as the stock market. Anyway, RPI is 0.3%, how can you not get better than that!?

As to the comment above. Poor old OP, yet another person has completely missed the point. "Which is fine as long as inflation and interest rates stay low" - no, the whole point of the post was to show that it doesn't matter what inflation does. To say "he then arrives at the conclusion" is bit patronising; it's an arithmetical fact, you wouldn't say that you've arrived at the conclusion that night follows day.

And the argument about savings and investments is unnecessary, if technically correct, though it might explain some of the discord here. (Though surely you'd expect both to at least match inflation over time.) If someone asks me how much money I have I don't say x in savings and y in investments, my "savings", apparently like the OP's, are what I've saved up during my life; x + y. Some of my "savings" are invested in the stock market, but they are still my savings. I regard investments as a subset of savings, not an entirely separate entity. I did used to differentiate between my pension 'savings' and the rest as it would have to be 'used' in a different way, but now I lump that in with my cash and shares as "savings". I expect many do the same. I don't imagine the OP thought many people had £600,000 in cash and nothing else (perhaps people well into retirement might), and he/she did explain why they erroneously settled on that figure.

I think you're all overcomplicating this. Some are not thinking it through, like those saying that taking the interest each year leaves the capital intact. Again this is technically correct but, and someone talked about planning for living to 120, imagine how much that capital would be worth if you settle on that scheme at 60 and lived another 60 years. The capital, and hence the income from it, would/could be almost worthless. My gran died with an old life insurance policy that paid £5 and presumably was meant to at least pay for her funeral.

It's why I'd never posted before; so many people appear to storm in with their opinions without even reading the posts they're commenting on and too many forums degenerate into a slanging match on a topic that barely relates to the question originally asked and then they think putting a smiley face after an insult stops it being rude in the way using hazard warning lights somehow makes illegal parking legal.

That and knowing I have no expertise in investing - though I can do the sums.

Sorry if that's 'far too long to read'.

Love and peace.


PS. Got to love the chap who put the apostrophe in "moron's" - QED.

Sorry, now I'm slipping into questionable etiquette. It's contagious.

bigadaj

Think you're missing the point of a forum.

It's partly to ask questions and receive straightforward answers from people more experienced or qualified in specific areas.

Alternatively it's a place to debate views and approaches, which will differ between people, often because they have different circumstances or requirements.

The problem with this thread is that it's stating the obvious without providing the best answer for many people. Stating that if my interest rate meets or exceeds inflation then my real value stays the same is obvious and not very helpful. Everyone's inflation rate is individual and often bears no relation to that stated on official statistics, whether that be rpi, cpi or other measures.

Most people, and particularly older people, will have an inflation rate above that officially stated as they wont benefit from such things as reduction in prices of manufactured goods, and more affected by energy and housing costs for example. It's politically expedient to understate the inflation rate.

I've not seen any independent analysis to compare reasonable returns from npbank accounts against inflation and other asset classes. Barclays equity gilt study has a very long term view indicating extremely low cash returns but these don't appear representative of what teh average individual could achieve with some effort.

enator

justwantedtosay wrote: »

Anyway, RPI is 0.3%, how can you not get better than that!?

No it's not - nowhere near in fact. Check here for the correct figures

https://www.ons.gov.uk/economy/inflationandpriceindices/timeseries/czbh

"Most people, and particularly older people, will have an inflation rate above that officially stated as they wont benefit from such things as reduction in prices of manufactured goods, and more affected by energy and housing costs for example. It's politically expedient to understate the inflation rate."

This ^^^^^^^^^^^

justwantedtosay

bigadaj wrote: »

The problem with this thread is that it's stating the obvious without providing the best answer for many people. Stating that if my interest rate meets or exceeds inflation then my real value stays the same is obvious and not very helpful.

You're missing the point too! Of course that's perfectly obvious but it's not at all what was said, is it? You're just proving my point about people commenting without reading/understanding the OP. I see why the OP gave up. I guess all the people that did understand just thought, "fair enough" and only those that didn't, bar one or two, felt the need to argue the toss. Some comments are quite ridiculous.

justwantedtosay

enator wrote: »

No it's not - nowhere near in fact.

"Most people, and particularly older people, will have an inflation rate above that officially stated as they wont benefit from such things as reduction in prices of manufactured goods,

Just to show that every action has an equal... And you might miss the point and think this dumb, but, and I know it to be the case from personal experience [and another poster here said they spend the same now as they did many years ago], the fact that older people aren't wasting money buying the very latest iPhone, tablet, TV, kitchen or taking umpteen city breaks each year means that they are spending much less than they were when they were working and had money to burn - even if it's not always from choice - and this helps balance the fact that inflation on what they do spend on might be a bit higher than average. Spending less in old age isn't just a matter of having less money, for many people it's in part because there's less to spend it on. I'm happy to sit on my comfy old sofa and don't feel the need to rush out and buy the latest fashion - I go as far as thinking there's no need to replace this or that because it will 'see me out'. Same with keeping up with clothing fashion, you no longer have to buy several trendy smart suits for work but slob around the house in old clobber, even if you still need something smart to socialise in. I've got, just about, everything I need - you do by this age - and it's comforting to have the old familiar things around me. Some folk can give up driving because they have a bus pass, others will be forced to; either way it's a huge expense they will no longer have to meet. And you just don't want to go out as much. I have no desire to go abroad anymore; seen everything I want to see and everywhere looks the same these days! Can't do anything too active anyway. You eat out less because it's too much of a fag and nothing tastes like it used to anyway. In the end you sit in front of daytime TV spending next to nothing because you can't be bothered to do anything else - or worse, can't do anything else - not personal experience quite yet, but definitely that of relatives a generation older. Not all these things apply to every person or at the same age, but in general and until you need care, you need less and so spend less in old age, so the same money can cope with a bit more inflation on food, though that's been negative of late. Heating's a pain though. Lots of things are discounted for pensioners too. There's never a simple answer. And yes, I know many pensioners really struggle. Which is why you're all saving, sorry investing, for the future, isn't it?

Now who's got away from the OP's subject?

You're going to love responding to that...

bigadaj

justwantedtosay wrote: »

You're missing the point too! Of course that's perfectly obvious but it's not at all what was said, is it? You're just proving my point about people commenting without reading/understanding the OP. I see why the OP gave up. I guess all the people that did understand just thought, "fair enough" and only those that didn't, bar one or two, felt the need to argue the toss. Some comments are quite ridiculous.

Ok, fair enough, but if the fundamental point of the original post wasn't valid then it undermines that initial thread.

I prefer to see actual evidence, that I've seen shows savings accounts to pay less than inflation over the longer term. More recently you can achieve higher, inflation beating returns, but only on limited sums and with some effort.

Periods of high inflation could easily lead to huge erosion of capital when savings rates fall well behind inflation, and that's a risk that needs to be acknowledged.

If someone had said interest rates would be at near zero levels for a decade or so in the early part of the last decade then they would have been laughed at, so all scenarios need to be considered and assessed in relation to their probability and risk and the comfort that an individual might need to determine whether their income is likely to be sufficient.

justwantedtosay

bigadaj wrote: »

Ok, fair enough, but if the fundamental point of the original post wasn't valid then it undermines that initial thread.

I prefer to see actual evidence, that I've seen shows savings accounts to pay less than inflation over the longer term. More recently you can achieve higher, inflation beating returns, but only on limited sums and with some effort.

Periods of high inflation could easily lead to huge erosion of capital when savings rates fall well behind inflation, and that's a risk that needs to be acknowledged.

If someone had said interest rates would be at near zero levels for a decade or so in the early part of the last decade then they would have been laughed at, so all scenarios need to be considered and assessed in relation to their probability and risk and the comfort that an individual might need to determine whether their income is likely to be sufficient.

The OP might have been too convinced about beating inflation but I don't think that was really the fundamental point. Anyway, don't you reckon a cautious fund would expect to match inflation most if not all the time? The OP didn't rule out the markets, just said he/she had had such bad experiences he/she was dubious about returning to them.

What was said about dividing your total "savings" by an optimistic estimation of your life expectancy each year and regarding that as a reasonable amount to withdraw that year seems sensible. Much more so them just suggesting a set percentage, 2.5, 5 or whatever else has been cited here, apparently regardless of age or circumstance. That really is silly and fundamentally wrong.

As was also said, the historical charts mostly refer to instant access accounts. I expect the authors want to suggest their funds are better and take the charges.

mgdavid

justwantedtosay wrote: »

.......... the fact that older people aren't wasting money buying the very latest iPhone, tablet, TV, kitchen or taking umpteen city breaks each year means that they are spending much less than they were when they were working and had money to burn - ...........

eh? now who's making assumptions!!
The savvy perhaps never did those things, when we had money to burn (as you put it) we saved some and invested some, (there IS a big difference and to ignore it is financially immature) and only then spent a little. Now in retirement we can still afford new phones, new household goods when needed, and weekend breaks and indeed longer holidays (now we have the time too).