How long will your savings last?

justwantedtosay

No, it's fun! I'm going to keep writing nonsense on loads of threads I don't really understand until I have over 3,000 posts.

fatbeetle

Looking at getting 3.2% on our savings over here. Good idea to keep as much in $Au as long as we can while the difference in interest rates remain.

atush

justwantedtosay wrote: »

No, it's fun! I'm going to keep writing nonsense on loads of threads I don't really understand until I have over 3,000 posts.

Well you are a slacker with only 10 posts so far?

gadgetmind

Hmmm, this has gone off in odd directions.

For someone relying heavily on a savings pot for retirement, forget cash unless you only plan on living for a decade or so. Keep 1-2 years' of "essentials" as cash at as high an interest rate as possible (basically just avoid losing value) and then invest the rest in a mix of bonds and equities. I'd suggest 50:50 unless you feel you can make a good argument for a different figure. Rebalance when it gets out of kilter and withdraw max 4% pa but this 4% is allowed to rise with inflation.

That 4% is very much a "rule of thumb" and many feel that it's now too high.

AlwaysLearnin

gadgetmind wrote: »

Hmmm, this has gone off in odd directions.

It's been a slow week on the pensions board...

justwantedtosay

atush wrote: »

Well you are a slacker with only 10 posts so far?

Give us a break, I only started this week!

justwantedtosay

gadgetmind wrote: »

Hmmm, this has gone off in odd directions.

For someone relying heavily on a savings pot for retirement, forget cash unless you only plan on living for a decade or so. Keep 1-2 years' of "essentials" as cash at as high an interest rate as possible (basically just avoid losing value) and then invest the rest in a mix of bonds and equities. I'd suggest 50:50 unless you feel you can make a good argument for a different figure. Rebalance when it gets out of kilter and withdraw max 4% pa but this 4% is allowed to rise with inflation.

That 4% is very much a "rule of thumb" and many feel that it's now too high.

I'm going to give this one last go and call it a day.

You are, I think, suggesting that cash can match inflation ("avoid losing value") and that the bonds and equities will beat that (over the course of retirement, if not in each and every year - otherwise you'd say put it all in cash, unless you think that you can't match inflation on larger sums). I'd go along with that. On that basis, by the OP's arithmetic, taking 4% pa, rising with inflation, your money will last at least 25 years, how much more than that depends on how much you beat inflation by. If you only live 15 years you'll almost certainly die with a lot in the bank. If you're 50 now and expect to get the royal telegram you might very well run out of money. (Though you'll still have you state pension so you won't be on the streets.) If you're 85 then you'd have to be an optimist to take less than 4% pa. I know you stressed that it's only a rule of thumb but I rather think that without making some allowance for age and life expectancy it's just too vague. Though, as I don't want to offend or doubt someone with so many 'thanks', I guess you're expecting everyone in the position of thinking about this to be around 65, in which case you're right, 4% is probably about right for most people in reasonable health. Only if you expect to live for more than 25 years or you think that your savings/investments won't keep up with inflation, need you take less than 4%. (But who can say with certainty.)

The OP's point was, I believe, that these low returns we are currently getting aren't quite as bad as they feel, nor are high ones as good, as your 'savings' will last just as long, as long as returns and inflation don't get out of kilter.

BTW, how come you're allowed to say, perfectly sensibly, that pension savings can be in equities while I was roundly abused for not insisting that equities are not 'savings' but 'investments'? I suppose it's fun to pick on the newbie.

bigfreddiel

justwantedtosay wrote: »

I'm going to give this one last go and call it a day.

You are, I think, suggesting that cash can match inflation ("avoid losing value") and that the bonds and equities will beat that (over the course of retirement, if not in each and every year - otherwise you'd say put it all in cash, unless you think that you can't match inflation on larger sums). I'd go along with that. On that basis, by the OP's arithmetic, taking 4% pa, rising with inflation, your money will last at least 25 years, how much more than that depends on how much you beat inflation by. If you only live 15 years you'll almost certainly die with a lot in the bank. If you're 50 now and expect to get the royal telegram you might very well run out of money. (Though you'll still have you state pension so you won't be on the streets.) If you're 85 then you'd have to be an optimist to take less than 4% pa. I know you stressed that it's only a rule of thumb but I rather think that without making some allowance for age and life expectancy it's just too vague. Though, as I don't want to offend or doubt someone with so many 'thanks', I guess you're expecting everyone in the position of thinking about this to be around 65, in which case you're right, 4% is probably about right for most people in reasonable health. Only if you expect to live for more than 25 years or you think that your savings/investments won't keep up with inflation, need you take less than 4%. (But who can say with certainty.)

The OP's point was, I believe, that these low returns we are currently getting aren't quite as bad as they feel, nor are high ones as good, as your 'savings' will last just as long, as long as returns and inflation don't get out of kilter.

BTW, how come you're allowed to say, perfectly sensibly, that pension savings can be in equities while I was roundly abused for not insisting that equities are not 'savings' but 'investments'? I suppose it's fun to pick on the newbie.

That's s relief to all of us.

justwantedtosay

bigfreddiel wrote: »

That's s relief to all of us.

Nobody's making you read this thread. Go and be rude to someone else and prove what a man you are.

Interesting to see you have the lowest Thanks to Posts ratio here. Says a lot, doesn't it!

uk1

gadgetmind wrote: »

Hmmm, this has gone off in odd directions.

For someone relying heavily on a savings pot for retirement, forget cash unless you only plan on living for a decade or so. Keep 1-2 years' of "essentials" as cash at as high an interest rate as possible (basically just avoid losing value) and then invest the rest in a mix of bonds and equities. I'd suggest 50:50 unless you feel you can make a good argument for a different figure. Rebalance when it gets out of kilter and withdraw max 4% pa but this 4% is allowed to rise with inflation.

That 4% is very much a "rule of thumb" and many feel that it's now too high.

The danger in generalising absolutely like this is that whilst it may be true for the majority it potentially misleads the small number of people who probably have enough cash to last them without the need to take any risks at all and have to burden themselve with unecessary worry and stress with more speculative investing than is strictly necesary. They simply don't know it.

So it is equally important to tell these people to establish whether they already have enough to last them and the the risk is therefore unecessary. Put another way, it is equally daft to risk your current security simply because you are greedy or do not know that you need do nothing and probably do not need to get more than you already have or actually need.

That is why building a spreadsheet with cautious presumptions is a good idea for most. The spreadsheet can be the source of reassurance as well as the need to trigger action.

Jeff