Once you've "won the game"

[Deleted User]

You could buy a joint annuity which continues paying after your death. Or at half rate. Or 2/3. Or you could buy a separate life insurance. Or not. Lots of options. 

MK62

......and lots of ways to reduce that already meagre payout.....that's the crux of it......it's not the idea itself, more the real numbers involved at present.

bostonerimus

In its most basic form "winning the game" might be having enough guaranteed index linked income to live comfortably. So if you get 9k SP and need 25k in the first year of retirement you need to find 16k. It's probably best to have a bit of headroom over your budget so let's add 10%. So thats 27.5k and you need to find 18.5k. For a 65 year old male a single life RPI annuity payout rate is 2.73% (it will be better if you are 66 or 67) and you probably need a couple of years of spending in the bank for emergencies and to pay for large one off expenses that you can the replenish with the 10% excess from the annuity. So the annuity will cost 678k and maybe you keep 50k in the bank for a total "winning" pot of 728k. 

Audaxer

zagfles said:

Audaxer said:

zagfles said:

Audaxer said:

zagfles said:

uk1 said:

zagfles said:

You uk1 said:

zagfles said:

bostonerimus said:

zagfles said:

uk1 said:

michaels said:

Albermarle said:

uk1 said:

waveydavey48 said:

I've read the expression "once you've won the game why keep playing" in relation to investing and it seems to refer to the situation where someone has invested long and well enough to be in the position where they have enough money to achieve their objectives, and the advice is that they should now de-risk. In other words why keep exposing your money to the vagaries of the market when you don't need to.
What happens next?
Is there a way to ensure your money just keeps pace with inflation so that it doesn't decrease in real terms, or maybe increases by 1 or 2% per annum?   

I think a further option for a few that is rarely considered is that it you genuinely have enough and you believe using all reasonable assumptions that you will always have enough it does present the option to take all of your cash out of all speculative harbours and put them into purely safe havens that offer no stress at all. 

I believe that although few in number many might be in this situation without realising it.  A good early indicator of this is if you currently have all your cash in non-speculative places and simply keep an uncomplicated spreadsheet that shows that even with decent spending you have more cash at any point in the current year than you did last year and before then perhaps you can live a stress free life and forget fund management.There are of course loads of "ifs" and "buts" but not having to track and fret about investing might actually extend life.

Good analysis, but I guess plenty of the regulars on here would get stressed knowing they were losing out to inflation and missing potential stock market returns , even though they did not need the money . Old habits die hard and for many investing  is one of their hobbies.

Inflation will be 6% plus by early next year - a few years like that and you must have started with a very big pot it not to be a problem - 6% inflation = a 6% investment loss.  Personally I couldn't live with that level of risk.

But that might not be the right advice for someone who is older than you and wealthier than you.  The point is that one view isn't right for all and the place of advice is to offer thoughts for the widest.  Some mistankly believe that their view is the view that is right for everyone.

You're missing the point. It's not about "advice" or "views", it's about why play the "game" once you've won.

There is no "safe haven" that guarantees your pot will not reduce in value in real terms. So if the "game" is preserving the value of your pot, you have to keep playing. You either take investment risk or inflation risk, or both, whatever you do. Obviously, it may be sensible to reduce risk, people will have views and give advice on that, but you can't eliminate risk. 

If the "game" is getting a guaranteed income for life, you can "win" that with an index linked annuity.

We've got to agree on the rules of this game and whether it involves preserving the value of a pot to pass on. The rules I go by in my plan are to guarantee a comfortable income and simply not worry about any of the remaining "unused" pot and leave it invested aggressively.

How have you achieved that "guaranteed comfortable income"?

By making and storing more than enough cash and assets than you will ever need. 

And how do you guarantee that cash and those assets will hold their real value? Or not drop enough that your "comfortable" income is no longer "comfortable"?

You really aren’t understanding.  

You are obsessed with protecting or increasing the value of the total asset pool.  Some do not need to but haven’t realised it, 

No, you aren't understanding. I'm not "obsessed" with anything. I'm making the point that you can't guarantee to have "more than enough cash and assets than you will ever need" unless you've found some way to guarantee they'll hold their value, or at least not reduce in value by so much that you now no longer have "enough". 

Yes, some people have more than enough cash than they will ever need. Someone could have more than enough income from DB and SPs to more than meet their needs, and also have say, £500k in cash savings, with no relatives that they wish to leave an inheritance to. If they leave it as cash it will lose money to inflation, but that may not bother them if they are unlikely to spend much of it anyway.

Some people in the same situation may invest it, and it may retain or increase it's value, but if they don't spend it or need to leave an inheritance, does it matter that it has retained or increased it's value?

But as you point out, you're still taking a risk with the £500k even if you leave it in cash. It may go down by less than equities, who knows, but in the current environment, it's almost certain to go down in value if in cash. Equities have more chance of keeping value in real terms.

But the whole point is that the risk doesn't matter to the pensioner in that example. If the value of the cash halves in value to £250k due to inflation, it doesn't matter to him as he is more than covered for his income needs by DB and SP pensions. As he is more than covered by his income, in that example he is likely to add excess income to his cash balance. 

The whole point of this thread was basically "why take risk when you don't need to". As you point out, holding cash is a risk. So the answer to "why take risk" (or "play the game") is basically you have to (unless you buy an index linked annuity - and yes obviously you take the different risk that you don't get your money back).

Also, for someone with a DB pension with capped inflation increases, like nearly all private sector DB pensions, there is still a risk as pointed out above - a decade of 1970's inflation would halve its value with a 5% cap, so if that person has a spare half million it might be wise to invest in something that hedges high inflation. I'm not sure what, but almost certainly not cash!

The OP started the thread saying he had read the expression - "once you've won the game why keep playing" in relation to investing. 

If you hold cash, I agree it will lose value over time due to inflation - i.e. it is a fact that it will lose value over time, rather than a risk that it will lose value, as you know it's going to happen. The point I was trying to make in the example in my previous post, is that the retired couple with £500k cash on top of DB and SPs are not worried about the fact that their cash will lose value to inflation, as they have more than they will ever need, so they see no advantage in investing it. In that example I would say they have won the game, as they don't need to invest it.

Let's say in the same example, in addition to the DB and SPs which more than cover their spending, they had £5million in cash - would you still say they hadn't won the game because their DB pensions had a 5% cap? 

zagfles

MK62 said:

Deleted_User said:

MK62 said:

Not sure about the insurance analogy.....you usually pay a relatively small premium to insure against having to pay a very large amount IF something happens......your house burns down, you total your car etc.
With annuities, you are paying a very high premium upfront for a relatively small income.....it only becomes insurance once the breakeven point is passed.......prior to that, it's really little more than a small  annual return of premium......they are really just giving you back your own money.
The breakeven point is unknown really......has to be estimated.......as is your longevity.......and therein lies the risk.....

By definition annuity is an insurance contract. 

Regardless of what you want to call it, annuities are purchased to protect, eg against volatility in the market and longevity. 

Looking at it another way… Normally when you pay for insurance, the insurance company is betting that all will be well and you are betting that something will go wrong: your house will burn down, you will die early or your car has an accident. You “win” payments from insurance but lose in life. Annuity is the type of insurance where you are betting that all will be well and you get to live for a long time. Then you win financially and by living a long life.  But you don’t actually lose financially by dying early. In the right circumstances annuity permits you to spend more before death, even if you die early. 

Life insurance (which can cost a lot compared to the payout) protects someone else. Annuity protects you. 

I didn't say annuities are not a type of insurance....
I said I wasn't sure about zagfles insurance analogy......which contended that as you don't count the cost of all your other insurance premiums together (car, house etc) over your life to see if you get your money back (a fair analysis), then you should not do the same with an annuity......I disagree. The basic premise is different.
At the end of the day, if you are happy that the risks of an annuity do not apply to you in your situation, then go for that option........in my situation, they do apply (and my situation is not uncommon)...........married, younger partner (with much smaller private pension provision due to not working for many years while parenting), kids in early 20s.......at the current rates on offer (and this is key) an annuity doesn't fit, for us.....we have to accept the risks of that choice, and that's fair enough.

I'm not going to buy one either. It's not a discussion about whether they're a good idea, it's a discussion about what they are. They are an insurance, and the decision to buy or not depends whether you value the particular protection that insurance gives you. Not whether you'll have a higher lifetime income or pot as a result.

zagfles

Audaxer said:

zagfles said:

Audaxer said:

zagfles said:

Audaxer said:

zagfles said:

uk1 said:

zagfles said:

You uk1 said:

zagfles said:

bostonerimus said:

zagfles said:

uk1 said:

michaels said:

Albermarle said:

uk1 said:

waveydavey48 said:

I've read the expression "once you've won the game why keep playing" in relation to investing and it seems to refer to the situation where someone has invested long and well enough to be in the position where they have enough money to achieve their objectives, and the advice is that they should now de-risk. In other words why keep exposing your money to the vagaries of the market when you don't need to.
What happens next?
Is there a way to ensure your money just keeps pace with inflation so that it doesn't decrease in real terms, or maybe increases by 1 or 2% per annum?   

I think a further option for a few that is rarely considered is that it you genuinely have enough and you believe using all reasonable assumptions that you will always have enough it does present the option to take all of your cash out of all speculative harbours and put them into purely safe havens that offer no stress at all. 

I believe that although few in number many might be in this situation without realising it.  A good early indicator of this is if you currently have all your cash in non-speculative places and simply keep an uncomplicated spreadsheet that shows that even with decent spending you have more cash at any point in the current year than you did last year and before then perhaps you can live a stress free life and forget fund management.There are of course loads of "ifs" and "buts" but not having to track and fret about investing might actually extend life.

Good analysis, but I guess plenty of the regulars on here would get stressed knowing they were losing out to inflation and missing potential stock market returns , even though they did not need the money . Old habits die hard and for many investing  is one of their hobbies.

Inflation will be 6% plus by early next year - a few years like that and you must have started with a very big pot it not to be a problem - 6% inflation = a 6% investment loss.  Personally I couldn't live with that level of risk.

But that might not be the right advice for someone who is older than you and wealthier than you.  The point is that one view isn't right for all and the place of advice is to offer thoughts for the widest.  Some mistankly believe that their view is the view that is right for everyone.

You're missing the point. It's not about "advice" or "views", it's about why play the "game" once you've won.

There is no "safe haven" that guarantees your pot will not reduce in value in real terms. So if the "game" is preserving the value of your pot, you have to keep playing. You either take investment risk or inflation risk, or both, whatever you do. Obviously, it may be sensible to reduce risk, people will have views and give advice on that, but you can't eliminate risk. 

If the "game" is getting a guaranteed income for life, you can "win" that with an index linked annuity.

We've got to agree on the rules of this game and whether it involves preserving the value of a pot to pass on. The rules I go by in my plan are to guarantee a comfortable income and simply not worry about any of the remaining "unused" pot and leave it invested aggressively.

How have you achieved that "guaranteed comfortable income"?

By making and storing more than enough cash and assets than you will ever need. 

And how do you guarantee that cash and those assets will hold their real value? Or not drop enough that your "comfortable" income is no longer "comfortable"?

You really aren’t understanding.  

You are obsessed with protecting or increasing the value of the total asset pool.  Some do not need to but haven’t realised it, 

No, you aren't understanding. I'm not "obsessed" with anything. I'm making the point that you can't guarantee to have "more than enough cash and assets than you will ever need" unless you've found some way to guarantee they'll hold their value, or at least not reduce in value by so much that you now no longer have "enough". 

Yes, some people have more than enough cash than they will ever need. Someone could have more than enough income from DB and SPs to more than meet their needs, and also have say, £500k in cash savings, with no relatives that they wish to leave an inheritance to. If they leave it as cash it will lose money to inflation, but that may not bother them if they are unlikely to spend much of it anyway.

Some people in the same situation may invest it, and it may retain or increase it's value, but if they don't spend it or need to leave an inheritance, does it matter that it has retained or increased it's value?

But as you point out, you're still taking a risk with the £500k even if you leave it in cash. It may go down by less than equities, who knows, but in the current environment, it's almost certain to go down in value if in cash. Equities have more chance of keeping value in real terms.

But the whole point is that the risk doesn't matter to the pensioner in that example. If the value of the cash halves in value to £250k due to inflation, it doesn't matter to him as he is more than covered for his income needs by DB and SP pensions. As he is more than covered by his income, in that example he is likely to add excess income to his cash balance. 

The whole point of this thread was basically "why take risk when you don't need to". As you point out, holding cash is a risk. So the answer to "why take risk" (or "play the game") is basically you have to (unless you buy an index linked annuity - and yes obviously you take the different risk that you don't get your money back).

Also, for someone with a DB pension with capped inflation increases, like nearly all private sector DB pensions, there is still a risk as pointed out above - a decade of 1970's inflation would halve its value with a 5% cap, so if that person has a spare half million it might be wise to invest in something that hedges high inflation. I'm not sure what, but almost certainly not cash!

The OP started the thread saying he had read the expression - "once you've won the game why keep playing" in relation to investing. 

If you hold cash, I agree it will lose value over time due to inflation - i.e. it is a fact that it will lose value over time, rather than a risk that it will lose value, as you know it's going to happen. The point I was trying to make in the example in my previous post, is that the retired couple with £500k cash on top of DB and SPs are not worried about the fact that their cash will lose value to inflation, as they have more than they will ever need, so they see no advantage in investing it. In that example I would say they have won the game, as they don't need to invest it.

Let's say in the same example, in addition to the DB and SPs which more than cover their spending, they had £5million in cash - would you still say they hadn't won the game because their DB pensions had a 5% cap? 

It's not a "fact", how do you know what future inflation and interest rates will be? It's still a risk.

£5 million is enough to buy an index linked annuity paying £100k pa so I'd say they'd won, if the game is "sufficient income for life".

MK62

Not if this millionaire needs £150k pa....😉

bostonerimus

If we define winning as just having to never worry about retirement income again and minimizing risk then the checkered flag is going to be at different places for different people because we have different budgets. If your pot is large and you needs are few then you are closer to the finish line. Right now the guarantee of an index linked annuity is as expensive as it has ever been so winning under the "risk free" definition is further away than ever and probably out of reach for most people; with RPI annuities with 2.73% payouts you need to pay 37x the first year's income. Most people simply can't generate enough income to live off at those rates because their pot isn't big enough.

[Deleted User]

 Right now the guarantee of an index linked annuity is as expensive as it has ever been

Words like "expensive" need to be defined.  Today a chicken costs more pennies than it ever has.  Does it mean its more expensive than it has ever been?  Nope.  Its very cheap compared to historic incomes.  It's cheap compared to beef.  Same with annuities.  One needs context. They are cheap given the current interest rates.  And given the long term inflation the market expects.  And given current life expectancies.  They are cheap compared to other fixed income products for the level of protection they actually offer. 

uk1

Audaxer said:

zagfles said:

Audaxer said:

zagfles said:

Audaxer said:

zagfles said:

uk1 said:

zagfles said:

You uk1 said:

zagfles said:

bostonerimus said:

zagfles said:

uk1 said:

michaels said:

Albermarle said:

uk1 said:

waveydavey48 said:

I've read the expression "once you've won the game why keep playing" in relation to investing and it seems to refer to the situation where someone has invested long and well enough to be in the position where they have enough money to achieve their objectives, and the advice is that they should now de-risk. In other words why keep exposing your money to the vagaries of the market when you don't need to.
What happens next?
Is there a way to ensure your money just keeps pace with inflation so that it doesn't decrease in real terms, or maybe increases by 1 or 2% per annum?   

I think a further option for a few that is rarely considered is that it you genuinely have enough and you believe using all reasonable assumptions that you will always have enough it does present the option to take all of your cash out of all speculative harbours and put them into purely safe havens that offer no stress at all. 

I believe that although few in number many might be in this situation without realising it.  A good early indicator of this is if you currently have all your cash in non-speculative places and simply keep an uncomplicated spreadsheet that shows that even with decent spending you have more cash at any point in the current year than you did last year and before then perhaps you can live a stress free life and forget fund management.There are of course loads of "ifs" and "buts" but not having to track and fret about investing might actually extend life.

Good analysis, but I guess plenty of the regulars on here would get stressed knowing they were losing out to inflation and missing potential stock market returns , even though they did not need the money . Old habits die hard and for many investing  is one of their hobbies.

Inflation will be 6% plus by early next year - a few years like that and you must have started with a very big pot it not to be a problem - 6% inflation = a 6% investment loss.  Personally I couldn't live with that level of risk.

But that might not be the right advice for someone who is older than you and wealthier than you.  The point is that one view isn't right for all and the place of advice is to offer thoughts for the widest.  Some mistankly believe that their view is the view that is right for everyone.

You're missing the point. It's not about "advice" or "views", it's about why play the "game" once you've won.

There is no "safe haven" that guarantees your pot will not reduce in value in real terms. So if the "game" is preserving the value of your pot, you have to keep playing. You either take investment risk or inflation risk, or both, whatever you do. Obviously, it may be sensible to reduce risk, people will have views and give advice on that, but you can't eliminate risk. 

If the "game" is getting a guaranteed income for life, you can "win" that with an index linked annuity.

We've got to agree on the rules of this game and whether it involves preserving the value of a pot to pass on. The rules I go by in my plan are to guarantee a comfortable income and simply not worry about any of the remaining "unused" pot and leave it invested aggressively.

How have you achieved that "guaranteed comfortable income"?

By making and storing more than enough cash and assets than you will ever need. 

And how do you guarantee that cash and those assets will hold their real value? Or not drop enough that your "comfortable" income is no longer "comfortable"?

You really aren’t understanding.  

You are obsessed with protecting or increasing the value of the total asset pool.  Some do not need to but haven’t realised it, 

No, you aren't understanding. I'm not "obsessed" with anything. I'm making the point that you can't guarantee to have "more than enough cash and assets than you will ever need" unless you've found some way to guarantee they'll hold their value, or at least not reduce in value by so much that you now no longer have "enough". 

Yes, some people have more than enough cash than they will ever need. Someone could have more than enough income from DB and SPs to more than meet their needs, and also have say, £500k in cash savings, with no relatives that they wish to leave an inheritance to. If they leave it as cash it will lose money to inflation, but that may not bother them if they are unlikely to spend much of it anyway.

Some people in the same situation may invest it, and it may retain or increase it's value, but if they don't spend it or need to leave an inheritance, does it matter that it has retained or increased it's value?

But as you point out, you're still taking a risk with the £500k even if you leave it in cash. It may go down by less than equities, who knows, but in the current environment, it's almost certain to go down in value if in cash. Equities have more chance of keeping value in real terms.

But the whole point is that the risk doesn't matter to the pensioner in that example. If the value of the cash halves in value to £250k due to inflation, it doesn't matter to him as he is more than covered for his income needs by DB and SP pensions. As he is more than covered by his income, in that example he is likely to add excess income to his cash balance. 

The whole point of this thread was basically "why take risk when you don't need to". As you point out, holding cash is a risk. So the answer to "why take risk" (or "play the game") is basically you have to (unless you buy an index linked annuity - and yes obviously you take the different risk that you don't get your money back).

Also, for someone with a DB pension with capped inflation increases, like nearly all private sector DB pensions, there is still a risk as pointed out above - a decade of 1970's inflation would halve its value with a 5% cap, so if that person has a spare half million it might be wise to invest in something that hedges high inflation. I'm not sure what, but almost certainly not cash!

The OP started the thread saying he had read the expression - "once you've won the game why keep playing" in relation to investing. 

If you hold cash, I agree it will lose value over time due to inflation - i.e. it is a fact that it will lose value over time, rather than a risk that it will lose value, as you know it's going to happen. The point I was trying to make in the example in my previous post, is that the retired couple with £500k cash on top of DB and SPs are not worried about the fact that their cash will lose value to inflation, as they have more than they will ever need, so they see no advantage in investing it. In that example I would say they have won the game, as they don't need to invest it.

Let's say in the same example, in addition to the DB and SPs which more than cover their spending, they had £5million in cash - would you still say they hadn't won the game because their DB pensions had a 5% cap? 

Hi,

May I make the well-intentioned observation that you are wasting your time in arguing with a poster that cannot accept that their opinion might not be relevant to everyone.  If you try and patiently explain this you will receive the demand that you disclose full details of your wealth in order to weaponise their reply.  It is simply pointless and a nil return effort.  Take heart in some understand fully our point and push on.

You read the title of the thread exactly as I have done. I simply pointed out as you have done that if you have genuinely "won the game" then you can shrug and not play and move on. It is a very fortunate place to be and my point is that some are in this postion but do not know it and understand their good fortune and have stress they needn't have.

In simple terms, I closed a successful busines and retired before I was 50.  I had an ex tax inspector as my accountant.  At the moment, my spendable cash is more at the end of each year than when I started.  Every year.  So in my very simple world my challenge isn't to increase my pot but to find more self-indulgent ways for my wife to spend faster against the background of a frugal and tough earlier life when she sacrificed to support my efforts.  Yes I have assets to cash if need be and they are fortunately much more than enough.  I needn't convince anyone else of this and I believe that there are a small number of people who may be in a similar situation but may not know it and that was my very simple point.  Hopefully those we genuinely hoped to help understand.

Push on.  Onwards and upwards,