Once you've "won the game"

EdSwippet

zagfles said:

"No boss, don't give me that £1000 payrise, I'll have to pay £90 more on my student loan"

"Thanks boss, I'll take the pay rise. Also, I'd like to speak to you about dropping down to a four-day week."

zagfles

EdSwippet said:

zagfles said:

"No boss, don't give me that £1000 payrise, I'll have to pay £90 more on my student loan"

"Thanks boss, I'll take the pay rise. Also, I'd like to speak to you about dropping down to a four-day week."

Or "thanks boss - that's £1000 more in my pensions so I don't have to "work till I drop""

I started work when basic rate income tax was 29% and higher rates went up to 60%. Amazingly there was never high demand to go part time.

Anonymous101

zagfles said:

EdSwippet said:

zagfles said:

"No boss, don't give me that £1000 payrise, I'll have to pay £90 more on my student loan"

"Thanks boss, I'll take the pay rise. Also, I'd like to speak to you about dropping down to a four-day week."

Or "thanks boss - that's £1000 more in my pensions so I don't have to "work till I drop""

I started work when basic rate income tax was 29% and higher rates went up to 60%. Amazingly there was never high demand to go part time.

Pretty comparable to todays "total taxation" once you factor in N.I.

The demand for part time working is interesting. Do you think the total hours worked by the population has changed much?
I'm not so sure. My take is that whilst once of a day it was common for the men to work full time and women to either not work or work part time. Recently there's been a shift to even that out somewhat, with either party working part time depending on the couples circumstances.

zagfles

Anonymous101 said:

zagfles said:

EdSwippet said:

zagfles said:

"No boss, don't give me that £1000 payrise, I'll have to pay £90 more on my student loan"

"Thanks boss, I'll take the pay rise. Also, I'd like to speak to you about dropping down to a four-day week."

Or "thanks boss - that's £1000 more in my pensions so I don't have to "work till I drop""

I started work when basic rate income tax was 29% and higher rates went up to 60%. Amazingly there was never high demand to go part time.

Pretty comparable to todays "total taxation" once you factor in N.I.

The demand for part time working is interesting. Do you think the total hours worked by the population has changed much?
I'm not so sure. My take is that whilst once of a day it was common for the men to work full time and women to either not work or work part time. Recently there's been a shift to even that out somewhat, with either party working part time depending on the couples circumstances.

Yes, on average people are probably working more hours now, with women working a lot more and men maybe a bit less. I doubt tax rates (even including the student loan repayment "tax") inflences people much.

Nebulous2

I suppose I'm someone who has 'won' the game, by chance mainly, but somehow it doesn't feel like it. 

We ploughed everything into bringing up children, mainly being a single-income family, and were able to squeeze a lot out of that single income, including regular driving holidays abroad. 

We 'won' because we bought a better house than would be possible in my occupation nowadays and paid it off in about 20 years. We then down-sized slightly, but moved to a cheaper part of the country and ended up with more cash than we have ever had before. 

We also won because I have a DB pension, originally NHS, which I transferred into LGPS that I paid into for about 35 years. I've retired and drawn it at 59 and it would be enough to live on, without too many compromises. There is a lot of moaning about the pension in the public sector, and telling my colleagues that their pension may well be worth more than their house generally got a look that said, you've really lost it now. 

I've also taken a part-time job with the NHS, and don't know what to do with that money, so I'm paying most of it into a SIPP. 

My wife will get a small DB pension in 18 months or so and we will both get full SP.  By SP age our pension income will be as much as it was when I was working in real terms, with dramatically lower baseline expenditure. 

We've roughly split the cash in two, with half invested in equities, mainly market trackers, and half in cash / premium bonds. We foresee a potential need for the cash, which is why we've kept it. If the right opportunity arose we would spend a lot on our house and we have enough to do that, but aren't agreed yet as to whether it will be worthwhile.

I'm not entirely sure why we've invested so much in equities, partly because I've always been interested, but didn't have the wherewithal, and partly because we cant think of anything else to do with it.
 

bostonerimus

Nebulous2 said:

I suppose I'm someone who has 'won' the game, by chance mainly, but somehow it doesn't feel like it. 

We ploughed everything into bringing up children, mainly being a single-income family, and were able to squeeze a lot out of that single income, including regular driving holidays abroad. 

We 'won' because we bought a better house than would be possible in my occupation nowadays and paid it off in about 20 years. We then down-sized slightly, but moved to a cheaper part of the country and ended up with more cash than we have ever had before. 

We also won because I have a DB pension, originally NHS, which I transferred into LGPS that I paid into for about 35 years. I've retired and drawn it at 59 and it would be enough to live on, without too many compromises. There is a lot of moaning about the pension in the public sector, and telling my colleagues that their pension may well be worth more than their house generally got a look that said, you've really lost it now. 

I've also taken a part-time job with the NHS, and don't know what to do with that money, so I'm paying most of it into a SIPP. 

My wife will get a small DB pension in 18 months or so and we will both get full SP.  By SP age our pension income will be as much as it was when I was working in real terms, with dramatically lower baseline expenditure. 

We've roughly split the cash in two, with half invested in equities, mainly market trackers, and half in cash / premium bonds. We foresee a potential need for the cash, which is why we've kept it. If the right opportunity arose we would spend a lot on our house and we have enough to do that, but aren't agreed yet as to whether it will be worthwhile.

I'm not entirely sure why we've invested so much in equities, partly because I've always been interested, but didn't have the wherewithal, and partly because we cant think of anything else to do with it.
 

The theme going through the winners here is "DB pension". Your situation and finances are very similar to what my parents had when they retired and back in the 1970s... it wasn't that odd. I think you have done things very sensibly by keeping some money in cash and some in riskier equities as you can afford to take the risk now that you have income covered by DB pensions and SP.

jamesd

Diplodicus said:

Cash?

I would be amazed if house prices were lower in 3, 5 or 10 years time because of the political truth that falling house prices equal unpopularity. Therefore rising house prices, unlike shares, are underpinned by Govt in this country.

Being invested in equities has beaten property over the last decade; but property is 95%  likely a better alternative than cash.

BoE analysis attributed most of the rise in property process to decreased interest rates. That implies a negative expectation in a time when rates are expected to rise. While nominal house prices tend not to decrease a lot of the time, real prices do fall because people set a nominal get back at least what I (nominally) paid target and inflation reduces the real price for them.

jamesd

billy2shots said:

...
The only job of money invested is to keep pace with inflation (if that's not the only job then you haven't truly won the game). 

You can invest all of it in so called 'lower risk holdings' but let's face it, that risk may still be too high to someone who doesn't need to take further risk. 

The alternative.
 50% cash gaining as much interest as possible whilst the capital remains totally safe. No need to go into detail here but regular savers, PBs etc where the government guarantees it safety, spread across accounts where needed. 

The other 50% is invested. If we take 3% as the average rate of inflation then we have to make an average return of 6% on that money (only 50% invested remember so it has to yield twice the return of inflation). ...
For any normal year you would withdraw half your annual income from your cash and the other half from the invested pot. 
Stock market down years would see you only take from cash. Better returning years would see you take more from the investment side to rebalance the cash towards a 50/50 weighting once again. 
...
It's really simple so probably heavily flawed but sometimes reading on here and other investing forums, people try so hard to overcomplicate things. 

The heavy flaw is that there are already two "products" that deliver approximately 100% chance of inflation protected income with no investment risk: buying an inflation-linked annuity (100% FSCS protection) and state pension deferral. If the only job is inflation protecting income then you buy those and stick anything left over in a discretionary spending or inheritance pot.

But while income while alive is the purpose for which tax relief is given, it's not the whole problem, as the original post might be taken to specify:

waveydavey48 said:

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.

In that, "their objectives" isn't tightly confined to income while alive but can also include inheritance or other giving objectives or even things like legally avoiding paying taxes or changing country. Annuities and state pension deferral can't necessarily deliver those other potential objectives.

For inheritance the best way I know is to cheat: give while alive. Then you know what you give and the recipients can invest with their risk tolerance instead of your possibly much lower one - and it should be much lower if keeping up with inflation is your only objective. But using your risk tolerance reduces the benefit to them so you're better off divesting yourself of the risk of underperformance by passing the problem to them early on.

MarkCarnage

jamesd said:

Diplodicus said:

Cash?

I would be amazed if house prices were lower in 3, 5 or 10 years time because of the political truth that falling house prices equal unpopularity. Therefore rising house prices, unlike shares, are underpinned by Govt in this country.

Being invested in equities has beaten property over the last decade; but property is 95%  likely a better alternative than cash.

BoE analysis attributed most of the rise in property process to decreased interest rates. That implies a negative expectation in a time when rates are expected to rise. While nominal house prices tend not to decrease a lot of the time, real prices do fall because people set a nominal get back at least what I (nominally) paid target and inflation reduces the real price for them.

Pretty accurate I suspect. The implicit target here may be higher general inflation and static nominal house prices. That also minimises the negative equity issue. There needs to be a fall in real house prices, but falling nominal prices carries more political pain so the aim will be for that not to happen under this Government at least. Doesn't mean it's right, nominal falls would be quicker but people aren't generally rational when it comes to house prices. 

jamesd

bostonerimus said:

jamesd said:

waveydavey48 said:

... 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?   

The traditional and still effective way to do this is to cover the inflation risk with index-linked annuity purchases.

A well known US retirement researcher, Wade Pfau, advocates substituting annuities for bonds and continuing with equity investing, on the basis that bonds are for risk reduction and annuity purchase is the ultimate in risk reduction.

His work advocating whole life insurance and annuities has been criticized in the Boglehead community, admittedly they do have a very strong bias against "insurance products". But he does take money from the insurance industry and is a professor at a university set up to educate insurance professionals...so I would be far more comfortable with his work if he was not so strongly tied into the insurance industry. Some of his assumptions (like 1.6% fees on an equity and bond portfolio) and methodologies in his work are argued to be slanted towards whole life and annuities. Also he is using US products and rates and they are very different from what's on offer in the UK.

For me I simply reject whole life insurance as expensive and complicated. With the disappearance of DB pensions annuities can provide a safe income floor and longevity insurance, but just as bonds look like bad value with today's low interest rates so do annuities. Right now they are an expensive longevity insurance product, but, if you've "won the game" you can afford them.

The American College of Financial Services was founded for life insurance underwriter training in 1927. Suggesting bias because it was founded to train underwriters ninety years ago and has diversified since then isn't helpful. Personally, in general bogleheads lack authority compared to someone with his reputation, though there are undoubtedly lots of exceptions.

I don't see a mention of 1.6% fees on a presumably IFA managed equity ad bond portfolio in his paper but maybe you have some other source, and in addition one for the effect of charges deducted on annuity purchase.

At your age and nine annuities don't look particularly attractive but in the podcast I linked to he mentions age 75 as a good sort of buying age and I mention late seventies to early eighties plus state pension deferral from state pension age. They are a useful tool and when there's truly enough the state pension and inflation linked annuity purchases deliver, because annuities here get 100% FSCS protection and state pension failure to deliver inflation is unlikely.