Once you've "won the game"

Langtang

Audaxer said:

Langtang said:

Following on from this post: https://forums.moneysavingexpert.com/discussion/6301953/once-youve-won-the-game

We're fortunate to have just received an inheritance which, along with our own savings, will lead to a comfortable retirement for the next 35 years (very basic: savings / 35 years = comfortable+)

We've never invested (except ISA's) , but are in the process of (potentially) doing so with the help of an IFA.

We're not adverse to investing, but worry about "corrections" more than I think we'd worry about inflation depreciation. I say "we" but my wife scored higher than me in the risk profile we completed with the IFA, which surprised me.

I wonder if it is worth starting to "invest" or if it's better to just keep the money "ticking over" with enough to cover inflation?

The title says you haven't started playing the game, but in a way you have already won the game thanks to your savings and inheritance, if it means that you can already have a comfortable retirement for over 35 years without investing. However I do think you are right to consider investing rather than keep it all in savings. I would try and learn as much as you can about investing on these forums and sites like Monevator, so that you at least know the right questions to ask your IFA and you don't get charged excessive fees.  

It's likely that we will invest 50%. Our appointment with the IFA is next week, but we've decided that we are going to retire at the end of this year, rather than waiting until we both reach 60.

The last time we spoke to him, we mentioned about not retiring until March 2023 - I'm not sure how that will affect how he has planned out our investment strategy. @dunstonh should we mention this to him prior to our meeting?

Thanks to this forum, and its amazing contributors, I've purchased Tim Hale's book, smarter investing. It's a great book - tough read for someone who has never invested, but a worthwhile read. I've also been reading Monevator regularly.

bostonerimus said:

Thrugelmir said:

Be interesting to see which strategies best ride the choppy waters that lie ahead. 

If you've "won" then the choppy waters and the result are of no interest. Some people will be in small boats and will be frantically adjusting the sales and others will be in big ships calmly gliding through the same waters...let's hope those folks aren't in the Titanic.

This is the kind of thing that worries me, when someone mentions choppy waters just as we're starting our investment journey. I know that waiting is "timing the market" and that doesn't work, but it's worrying nevertheless.

Langtang

As an aside, I notice that my thread has been amalgamated with this one now. I was initially going to post on here, but it seemed to me that it would have been construed as hijacking someone else's post. Thanks to whoever merged them.

JohnWinder

MK62 said:

This all started with my post stating that there is currently no guaranteed way to protect a pot of money from the effects of inflation - that's not the same as saying there are no ways of doing it at all - they just aren't guaranteed, which is what the OP was asking. Equities are one possibility but nobody needs telling that this approach is not guaranteed.......gilts...no....linker gilts...no.......

Some readers may not understand the 'linker gilts...no'.  Could you elaborate on why that might not be guaranteed, or might not even do it at all regardless of guarantee?

Thrugelmir

MK62 said:

Malthusian said:

There is one guaranteed way actually - buy an inflation-linked annuity. "Money" can mean "income" as well as "capital". If you buy an inflation-linked annuity then you will have the same amount of money to spend month-to-month for the rest of your life and that money will keep pace with inflation.

You have to forfeit a very large amount of potential income as well as the option of passing on (most of) the capital on your death, but the option's there.

The problem is of course that an inflation linked annuity is not actually guaranteed......if you check out after say 10 years, you've only got back a fraction of what you put in.....not really a guaranteed way of inflation protecting a pot of money, at least imho.

To the same degree as some markets get pushed higher and higher. Future returns diminish. Company profitability is finite. Nor is company profitability linked to inflation. 

zagfles

MK62 said:

Interesting mathematical game.....

Assume a 60yo had access to an index linked savings account, into which he pays £100k (pot 1).

At the same time, he/she also buys an index linked annuity for £100k, at current levels, and pays the income from that (assume tax free) into another pot (pot 2) in the same savings account. How many years would it take before pot 2 overtakes pot 1?

In the above, pot 1 would represent a guaranteed way to protect £100k from inflation.....pot 2 represents the "buy an index linked annuity" approach.......

So you want to compare a fantasy account which doesn't exist with something that does at current rates

Pointless mathematical game. May as well compare a savings account paying 10% interest with the current levels of savings account interest.

Yields on index linked gilts are negative, so index linked annuities wouldn't be expected to return the full pot after inflation.

zagfles

MK62 said:

Deleted_User said:

Protecting a pot of money is good for the pot.  Protecting a standard of living is good for retiree. All depends on priorities.

That rather depends on how you define "protecting a standard of living"........If you are currently drawing say £15k from a pot, and are worried about the effects of inflation on your standard of living, then swapping that pot for annuity paying £10k a year, even if index linked, is a rather strange way of going about it imho.

Deleted_User said:

Aside from that, index linked annuities are not competitively priced. You can buy a flat annuity or an annuity which escalates at a fixed rate.  And you would never start receiving payments at 60, even if you buy an annuity at that age. 

I agree, RPI linked annuities aren't competitively priced, at the moment at least, unless the worst case scenario comes to pass, which the annuity provider has planned against and then priced such annuities accordingly.However, those are what were being talked about.......

As for flat rate annuities......there is no inflation protection in those at all - in the above scenario, that £15k might become £20k at the start......but assuming the purchaser makes 70, he/she might be regretting such a purchase by then.

Deferred annuities?.......perhaps, as long as you have alternative means to live off in the meantime......though I'm still not sure what inflation guarantees such an annuity would offer......

This all started with my post stating that there is currently no guaranteed way to protect a pot of money from the effects of inflation - that's not the same as saying there are no ways of doing it at all - they just aren't guaranteed, which is what the OP was asking. Equities are one possibility but nobody needs telling that this approach is not guaranteed....gilts...no....linker gilts...no....gold no....corporate bonds...no....retail savings...no...commodities....no.....lottery tickets, premium bonds et al...only if you win.... .

I'm happy to be corrected if someone knows of a guaranteed way of course.........if so it might well mean I've "won the game" too.....

The whole point of several posts above is that is no guaranteed way. All "risk free" investments will yield less than inflation. So there is no guaranteed way to preserve your pot of money, if that's your "game". So nobody has won that "game", if winning is defined as OP implies, as being able to stop taking risk.

If your "game" is you want a certain income for life, then if you have enough in your pot to buy an index linked annuity paying that income, then you have won that "game". Otherwise, you have to keep playing.

So on your figures above, take a "win" with £10k for life, or carry on playing (ie taking risks) with £15k for now but possibly more, less, or none in the future.

AlanP_2

Langtang said:

Audaxer said:

Langtang said:

Following on from this post: https://forums.moneysavingexpert.com/discussion/6301953/once-youve-won-the-game

We're fortunate to have just received an inheritance which, along with our own savings, will lead to a comfortable retirement for the next 35 years (very basic: savings / 35 years = comfortable+)

We've never invested (except ISA's) , but are in the process of (potentially) doing so with the help of an IFA.

We're not adverse to investing, but worry about "corrections" more than I think we'd worry about inflation depreciation. I say "we" but my wife scored higher than me in the risk profile we completed with the IFA, which surprised me.

I wonder if it is worth starting to "invest" or if it's better to just keep the money "ticking over" with enough to cover inflation?

The title says you haven't started playing the game, but in a way you have already won the game thanks to your savings and inheritance, if it means that you can already have a comfortable retirement for over 35 years without investing. However I do think you are right to consider investing rather than keep it all in savings. I would try and learn as much as you can about investing on these forums and sites like Monevator, so that you at least know the right questions to ask your IFA and you don't get charged excessive fees.  

It's likely that we will invest 50%. Our appointment with the IFA is next week, but we've decided that we are going to retire at the end of this year, rather than waiting until we both reach 60.

The last time we spoke to him, we mentioned about not retiring until March 2023 - I'm not sure how that will affect how he has planned out our investment strategy. @dunstonh should we mention this to him prior to our meeting?

Thanks to this forum, and its amazing contributors, I've purchased Tim Hale's book, smarter investing. It's a great book - tough read for someone who has never invested, but a worthwhile read. I've also been reading Monevator regularly.

bostonerimus said:

Thrugelmir said:

Be interesting to see which strategies best ride the choppy waters that lie ahead. 

If you've "won" then the choppy waters and the result are of no interest. Some people will be in small boats and will be frantically adjusting the sales and others will be in big ships calmly gliding through the same waters...let's hope those folks aren't in the Titanic.

This is the kind of thing that worries me, when someone mentions choppy waters just as we're starting our investment journey. I know that waiting is "timing the market" and that doesn't work, but it's worrying nevertheless.

The water is always choppy.

Just think back over your lifetime about the big "events" that have affected markets and then look at the return graphs for a world index say - the events are small blips.

OK that needs a decent timeframe to work but you are hopefully planing on another 25-40 years of life ahead of you and not planning on spending all the investments in 2024 say!

[Deleted User]

JohnWinder said:

MK62 said:

This all started with my post stating that there is currently no guaranteed way to protect a pot of money from the effects of inflation - that's not the same as saying there are no ways of doing it at all - they just aren't guaranteed, which is what the OP was asking. Equities are one possibility but nobody needs telling that this approach is not guaranteed.......gilts...no....linker gilts...no.......

Some readers may not understand the 'linker gilts...no'.  Could you elaborate on why that might not be guaranteed, or might not even do it at all regardless of guarantee?

They have a duration. You have a duration.  If durations are the same then you have a guarantee for life. The problem is that you don’t know your duration.  The linker may run out.  On renewal the rate might be very different. 

michaels

Deleted_User said:

JohnWinder said:

MK62 said:

This all started with my post stating that there is currently no guaranteed way to protect a pot of money from the effects of inflation - that's not the same as saying there are no ways of doing it at all - they just aren't guaranteed, which is what the OP was asking. Equities are one possibility but nobody needs telling that this approach is not guaranteed.......gilts...no....linker gilts...no.......

Some readers may not understand the 'linker gilts...no'.  Could you elaborate on why that might not be guaranteed, or might not even do it at all regardless of guarantee?

They have a duration. You have a duration.  If durations are the same then you have a guarantee for life. The problem is that you don’t know your duration.  The linker may run out.  On renewal the rate might be very different. 

But I thought we had dismissed annuities precisely because they were linked to lifetime rather than protecting the value of a pot 'forever' so I guess given that there is a maximum duration of available linkers then you are correct but was that really what the OP wanted to do?

Sure there is a cost for this protection which means that the real value of the protected sum is lower than the current value of the pot used to purchase this protected forever sum but is that unexpected that you have to pay for protection?

[Deleted User]

michaels said:

Deleted_User said:

JohnWinder said:

MK62 said:

This all started with my post stating that there is currently no guaranteed way to protect a pot of money from the effects of inflation - that's not the same as saying there are no ways of doing it at all - they just aren't guaranteed, which is what the OP was asking. Equities are one possibility but nobody needs telling that this approach is not guaranteed.......gilts...no....linker gilts...no.......

Some readers may not understand the 'linker gilts...no'.  Could you elaborate on why that might not be guaranteed, or might not even do it at all regardless of guarantee?

They have a duration. You have a duration.  If durations are the same then you have a guarantee for life. The problem is that you don’t know your duration.  The linker may run out.  On renewal the rate might be very different. 

But I thought we had dismissed annuities precisely because they were linked to lifetime rather than protecting the value of a pot 'forever' so I guess given that there is a maximum duration of available linkers then you are correct but was that really what the OP wanted to do?

Sure there is a cost for this protection which means that the real value of the protected sum is lower than the current value of the pot used to purchase this protected forever sum but is that unexpected that you have to pay for protection?

“We”? I did not dismiss annuities.   Nor did the author of the “won the game” quote. I do not care about protecting the pot. That’s a bad objective. 

And yes, bonds do have fixed durations.