Once you've "won the game"

MK62

jamesd said:

MK62 said:

jamesd said:

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). 
...

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.

It's true that an inflation linked annuity will protect the income it pays out from inflation......not in dispute.....but the rub is that the income it pays out is low......

Taken to the extreme, if I offered to pay you an index linked income of £100pa for life, in exchange for £100k, it's true that the income would be protected from inflation for the rest of your life, with no investment risk, but the level is too low. That's the crux of it, at least imho.

The definition in the original post was you've already won the game so you have enough money to buy that annuity and leave the game, however much it costs.

Yes, annuities are expensive but that's the price for getting out of the game.

Of course for those who haven't yet won the game the price of annuities matters far more!

My view is slightly different of course......imho you are just swapping one game for another......the annuity "game" might be OK for relatively affluent risk averse single people with no dependants or kids.....for the rest maybe not so much......but each to their own I suppose.
As for the price of annuities mattering more to some than others......I would have thought that for most people considering spending a large part of their life savings, probably several hundred thousand pounds, the price would matter quite a lot.....but perhaps not!

Dazza1902

uk1 said:

Much of the comment on this and all threads is predicated on the notion that the key thing (and some seem to feel the only thing)  is to ensure that your capital and pot grows in sync or ahead of your spending once you have retired.  In other words your total value is always protected and must never drop.  That's why there is such a high-level focus by many on annuities.  This basic idea is true if you wish it to be that way.  But too many fall into the trap of not considering what many will say is a terribly risky option. 

I happen not to see it that way.  There is another option to consider and that is to treat all of your combined pots when you reach retirement as a sinking fund and that given all the clever caveats and doom assertions, your aim with your sinking fund spreadsheet is to have a zero balance when you and all those you care for given reasonable and sensible assumptions are taken care of at some point you decide will be zero observing of course a reasonable safety margin.  I know many will disagree but it is an option that when thought through might not be that daft.  The idea of ensuring that given reasonable presumptions that when you and your spouse pop your cloggs that there is enough to take care of who you want to with whatever you decide and ensure that little is left to tax is an approach that requires you to exert some clarity over what you actually want to be the outcome.  Some may actually shokingly find that they are not spending as quickly as they need in retirement to achieve the closing balance they plan if you get my drift.

When taking this approach a very few number of fortunate people may find that their challenge isn't as large as they think it is when taken from the sucked-in viewpoint that you must always have a growing fund.  And for the sake of clarity to repeat myself.  Very fall fall into this group, my point being that some are in this fortuante position without knowing so and it just makes sense to consider all strategy and tactical options.

Spot on Sir, you cannot take it with you

. I have children,but don't feel compelled to leave any savings in tact for them, it's for our retirement. The vast majority of couples do not need 1.2 million in retirement savings .

bostonerimus

In all these discussions US data and white papers are often used because DC retirement is more mature and a lot more research has been done there. These are great for understanding the principles and issues involved, but be careful when looking at the modelling results and the factors involved are different in the UK and US. Here's an interesting comparison.

For a single male age 65 the UK single life annuity payout rate is 5%, it's 6.3% in USA.
A UK 5 year fixed term saving account pays 1.8%, the US equivalent pays 1.15%

So in the UK a ladder of fixed term saving accounts (at 1.8%) will provide the same income the annuity for 24 years. In the US the equivalent ladder will only match the annuity for 18 years...So US annuities look a lot better "value" than UK ones. 

Similar differences between levels of SP, assumed investment returns and fees will also produce different results. Just be careful not to compare UK apples to US oranges in all this.

bostonerimus

Dazza1902 said:

uk1 said:

Much of the comment on this and all threads is predicated on the notion that the key thing (and some seem to feel the only thing)  is to ensure that your capital and pot grows in sync or ahead of your spending once you have retired.  In other words your total value is always protected and must never drop.  That's why there is such a high-level focus by many on annuities.  This basic idea is true if you wish it to be that way.  But too many fall into the trap of not considering what many will say is a terribly risky option. 

I happen not to see it that way.  There is another option to consider and that is to treat all of your combined pots when you reach retirement as a sinking fund and that given all the clever caveats and doom assertions, your aim with your sinking fund spreadsheet is to have a zero balance when you and all those you care for given reasonable and sensible assumptions are taken care of at some point you decide will be zero observing of course a reasonable safety margin.  I know many will disagree but it is an option that when thought through might not be that daft.  The idea of ensuring that given reasonable presumptions that when you and your spouse pop your cloggs that there is enough to take care of who you want to with whatever you decide and ensure that little is left to tax is an approach that requires you to exert some clarity over what you actually want to be the outcome.  Some may actually shokingly find that they are not spending as quickly as they need in retirement to achieve the closing balance they plan if you get my drift.

When taking this approach a very few number of fortunate people may find that their challenge isn't as large as they think it is when taken from the sucked-in viewpoint that you must always have a growing fund.  And for the sake of clarity to repeat myself.  Very fall fall into this group, my point being that some are in this fortuante position without knowing so and it just makes sense to consider all strategy and tactical options.

Spot on Sir, you cannot take it with you

. I have children,but don't feel compelled to leave any savings in tact for them, it's for our retirement. The vast majority of couples do not need 1.2 million in retirement savings .

It's all about the definition of "won the game". If it means providing all your lifetime income from guaranteed index linked sources then using index linked lifetime annuities is an expensive solution out of reach of many people. But just for practicality most people would do a partial annuitization and leave the rest invested to have some liquidity and because of the potential for greater returns that will look like a less expensive solution. As with most choices in finances it's about balancing risk with potential return.

uk1

Dazza1902 said:

uk1 said:

Much of the comment on this and all threads is predicated on the notion that the key thing (and some seem to feel the only thing)  is to ensure that your capital and pot grows in sync or ahead of your spending once you have retired.  In other words your total value is always protected and must never drop.  That's why there is such a high-level focus by many on annuities.  This basic idea is true if you wish it to be that way.  But too many fall into the trap of not considering what many will say is a terribly risky option. 

I happen not to see it that way.  There is another option to consider and that is to treat all of your combined pots when you reach retirement as a sinking fund and that given all the clever caveats and doom assertions, your aim with your sinking fund spreadsheet is to have a zero balance when you and all those you care for given reasonable and sensible assumptions are taken care of at some point you decide will be zero observing of course a reasonable safety margin.  I know many will disagree but it is an option that when thought through might not be that daft.  The idea of ensuring that given reasonable presumptions that when you and your spouse pop your cloggs that there is enough to take care of who you want to with whatever you decide and ensure that little is left to tax is an approach that requires you to exert some clarity over what you actually want to be the outcome.  Some may actually shokingly find that they are not spending as quickly as they need in retirement to achieve the closing balance they plan if you get my drift.

When taking this approach a very few number of fortunate people may find that their challenge isn't as large as they think it is when taken from the sucked-in viewpoint that you must always have a growing fund.  And for the sake of clarity to repeat myself.  Very fall fall into this group, my point being that some are in this fortuante position without knowing so and it just makes sense to consider all strategy and tactical options.

Spot on Sir, you cannot take it with you

. I have children,but don't feel compelled to leave any savings in tact for them, it's for our retirement. The vast majority of couples do not need 1.2 million in retirement savings .

Good grief!  Someone agrees with me! 

For people in this situation there are compelling reasons why buying annuities might be a very bad decision.   When you buy an annuity you are buying it from an outift who are pretty experienced and generally understand what they are doing and are intent on ensuring that they make a profit ie you and other purchasers on average make a loss.  People often seem to see that an annuity purchase is the opposite of gambling.  It isn't quite so because on average the provider makes a profit.

(Thanks! )

MK62

Dazza1902 said:

uk1 said:

Much of the comment on this and all threads is predicated on the notion that the key thing (and some seem to feel the only thing)  is to ensure that your capital and pot grows in sync or ahead of your spending once you have retired.  In other words your total value is always protected and must never drop.  That's why there is such a high-level focus by many on annuities.  This basic idea is true if you wish it to be that way.  But too many fall into the trap of not considering what many will say is a terribly risky option. 

I happen not to see it that way.  There is another option to consider and that is to treat all of your combined pots when you reach retirement as a sinking fund and that given all the clever caveats and doom assertions, your aim with your sinking fund spreadsheet is to have a zero balance when you and all those you care for given reasonable and sensible assumptions are taken care of at some point you decide will be zero observing of course a reasonable safety margin.  I know many will disagree but it is an option that when thought through might not be that daft.  The idea of ensuring that given reasonable presumptions that when you and your spouse pop your cloggs that there is enough to take care of who you want to with whatever you decide and ensure that little is left to tax is an approach that requires you to exert some clarity over what you actually want to be the outcome.  Some may actually shokingly find that they are not spending as quickly as they need in retirement to achieve the closing balance they plan if you get my drift.

When taking this approach a very few number of fortunate people may find that their challenge isn't as large as they think it is when taken from the sucked-in viewpoint that you must always have a growing fund.  And for the sake of clarity to repeat myself.  Very fall fall into this group, my point being that some are in this fortuante position without knowing so and it just makes sense to consider all strategy and tactical options.

Spot on Sir, you cannot take it with you

. I have children,but don't feel compelled to leave any savings in tact for them, it's for our retirement. The vast majority of couples do not need 1.2 million in retirement savings .

The decision about wanting to leave any savings for others is an entirely personal one.....my view is different to yours on this, and while I would like to do just that, if reasonably possible, I do not feel compelled, and I won't live in penury to do it either.
As for the vast majority of couples not needing 1.2 million, how much do you think they need?...😉

zagfles

uk1 said:

Much of the comment on this and all threads is predicated on the notion that the key thing (and some seem to feel the only thing)  is to ensure that your capital and pot grows in sync or ahead of your spending once you have retired.  In other words your total value is always protected and must never drop.  That's why there is such a high-level focus by many on annuities.  This basic idea is true if you wish it to be that way.  But too many fall into the trap of not considering what many will say is a terribly risky option. 

I happen not to see it that way.  There is another option to consider and that is to treat all of your combined pots when you reach retirement as a sinking fund and that given all the clever caveats and doom assertions, your aim with your sinking fund spreadsheet is to have a zero balance when you and all those you care for given reasonable and sensible assumptions are taken care of at some point you decide will be zero observing of course a reasonable safety margin.  I know many will disagree but it is an option that when thought through might not be that daft.  The idea of ensuring that given reasonable presumptions that when you and your spouse pop your cloggs that there is enough to take care of who you want to with whatever you decide and ensure that little is left to tax is an approach that requires you to exert some clarity over what you actually want to be the outcome.  Some may actually shokingly find that they are not spending as quickly as they need in retirement to achieve the closing balance they plan if you get my drift.

When taking this approach a very few number of fortunate people may find that their challenge isn't as large as they think it is when taken from the sucked-in viewpoint that you must always have a growing fund.  And for the sake of clarity to repeat myself.  Very fall fall into this group, my point being that some are in this fortuante position without knowing so and it just makes sense to consider all strategy and tactical options.

What?? An annuity is a "sinking fund" by definition. Once in payment its current "value" is the annual payout * the number of years you have to live. Obviously you don't know the latter, but you do know it will shrink by one year every year. So its value is "sinking". When you die, and your spouse if it's a joint annuity, the value is zero. The zero balance you talk about above.

So what you're talking about is similar to an annuity ie a "sinking fund", but an annuity guarantees it, whereas drawing down from a pot however invested in cash/bonds/equities/property etc doesn't guarantee it - ie you still have to "play the game", invest and hope your investments achieve your objectives.

Do you get it now?

zagfles

uk1 said:

Dazza1902 said:

uk1 said:

Much of the comment on this and all threads is predicated on the notion that the key thing (and some seem to feel the only thing)  is to ensure that your capital and pot grows in sync or ahead of your spending once you have retired.  In other words your total value is always protected and must never drop.  That's why there is such a high-level focus by many on annuities.  This basic idea is true if you wish it to be that way.  But too many fall into the trap of not considering what many will say is a terribly risky option. 

I happen not to see it that way.  There is another option to consider and that is to treat all of your combined pots when you reach retirement as a sinking fund and that given all the clever caveats and doom assertions, your aim with your sinking fund spreadsheet is to have a zero balance when you and all those you care for given reasonable and sensible assumptions are taken care of at some point you decide will be zero observing of course a reasonable safety margin.  I know many will disagree but it is an option that when thought through might not be that daft.  The idea of ensuring that given reasonable presumptions that when you and your spouse pop your cloggs that there is enough to take care of who you want to with whatever you decide and ensure that little is left to tax is an approach that requires you to exert some clarity over what you actually want to be the outcome.  Some may actually shokingly find that they are not spending as quickly as they need in retirement to achieve the closing balance they plan if you get my drift.

When taking this approach a very few number of fortunate people may find that their challenge isn't as large as they think it is when taken from the sucked-in viewpoint that you must always have a growing fund.  And for the sake of clarity to repeat myself.  Very fall fall into this group, my point being that some are in this fortuante position without knowing so and it just makes sense to consider all strategy and tactical options.

Spot on Sir, you cannot take it with you

. I have children,but don't feel compelled to leave any savings in tact for them, it's for our retirement. The vast majority of couples do not need 1.2 million in retirement savings .

Good grief!  Someone agrees with me! 

For people in this situation there are compelling reasons why buying annuities might be a very bad decision.   When you buy an annuity you are buying it from an outift who are pretty experienced and generally understand what they are doing and are intent on ensuring that they make a profit ie you and other purchasers on average make a loss.  People often seem to see that an annuity purchase is the opposite of gambling.  It isn't quite so because on average the provider makes a profit.

(Thanks! )

Index linked annuities are expensive because the yields on index linked gilts are negative. That's far and away the main reason. Guarantees are currently expensive. Which is why most people, myself included, will carry on "playing the game" rather than buying one.

Thrugelmir

bostonerimus said:

So US annuities look a lot better "value" than UK ones. 

On the negative side may well reflect a lower life expectancy.  

Two sides to every coin. 

Dazza1902

MK62 said:

Dazza1902 said:

uk1 said:

Much of the comment on this and all threads is predicated on the notion that the key thing (and some seem to feel the only thing)  is to ensure that your capital and pot grows in sync or ahead of your spending once you have retired.  In other words your total value is always protected and must never drop.  That's why there is such a high-level focus by many on annuities.  This basic idea is true if you wish it to be that way.  But too many fall into the trap of not considering what many will say is a terribly risky option. 

I happen not to see it that way.  There is another option to consider and that is to treat all of your combined pots when you reach retirement as a sinking fund and that given all the clever caveats and doom assertions, your aim with your sinking fund spreadsheet is to have a zero balance when you and all those you care for given reasonable and sensible assumptions are taken care of at some point you decide will be zero observing of course a reasonable safety margin.  I know many will disagree but it is an option that when thought through might not be that daft.  The idea of ensuring that given reasonable presumptions that when you and your spouse pop your cloggs that there is enough to take care of who you want to with whatever you decide and ensure that little is left to tax is an approach that requires you to exert some clarity over what you actually want to be the outcome.  Some may actually shokingly find that they are not spending as quickly as they need in retirement to achieve the closing balance they plan if you get my drift.

When taking this approach a very few number of fortunate people may find that their challenge isn't as large as they think it is when taken from the sucked-in viewpoint that you must always have a growing fund.  And for the sake of clarity to repeat myself.  Very fall fall into this group, my point being that some are in this fortuante position without knowing so and it just makes sense to consider all strategy and tactical options.

Spot on Sir, you cannot take it with you

. I have children,but don't feel compelled to leave any savings in tact for them, it's for our retirement. The vast majority of couples do not need 1.2 million in retirement savings .

The decision about wanting to leave any savings for others is an entirely personal one.....my view is different to yours on this, and while I would like to do just that, if reasonably possible, I do not feel compelled, and I won't live in penury to do it either.
As for the vast majority of couples not needing 1.2 million, how much do you think they need?...😉

I think I read the average couples retirement income was 25 k.
With two full state pensions at 67 a couple is not that far from the average.
My personal position is two full sp and about 12 k dB at 60. I am quite happy to drawdown all but 50 k  of my DC by sp age to fund an earlier retirement. 
Not sure I feel like I've won tho 😀