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Weekend reading: Are you ready to spend all your money?

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What caught my eye this week.

Switching from saving to spending can be tricky for self-directed investors.

In the old days the transition was easier. You stopped working, drew a pension controlled by your previous employer, stared at the carriage clock you’d been given on your last day and wondered where all time went, and then died too few years later.

(Okay – easy-ish!)

Today, though, final salary1 pensions are an endangered species. Saving for yourself means more complication on the way up, because you’re responsible for figuring out how much to put aside to invest for your retirement.

It also puts more of a burden on you to figure out how much you can spend a year on the way – ahem – down.

These aren’t simply mathematical problems, or even questions of risk.

With a little effort, most people can devise an investment plan to save for retirement.

And while low yields from fixed income have muddied the waters, in principle working out what you can withdraw and spend from your portfolio in retirement is also doable.

You make a few assumptions, put them into a calculator, and out pops your annual living allowance. Sure you’ll be roughly wrong as much as roughly right, but you can course correct along the way.

A state pension takes the edge off running out of money too soon, too.

Spenders versus savers

There is a further, less-discussed challenge with retirement spending though: the mental jujitsu required to turn from being a lifelong saver into a rest-of-life splurger.

Those still saving their way out of the rat race may dismiss such concerns. And statistics do suggest it’s not hard for everyone.

According to the Association for British Insurers:

The average rates at which people are withdrawing money from their pension could see people running out of money in retirement if they do not have other sources of income.

Full withdrawals have risen to their highest level since [pension] freedoms were introduced: 40% of withdrawals were at an annual rate of 8% and over, which is not sustainable.

Clearly a significant chunk of the population are used to spending most of what they can, and retirement doesn’t change that. The only (good) reason they were able to build up their pensions in the first place was because they couldn’t get at the money.

But the sort of people who regularly read Monevator are cut from a different cloth.

Many of us remember the travails of the blogger SexHealthMoneyDeath. Among other things, he found the transition to spending so hard he went back to work. I know I’m not the only person who wonders what happened to RIT, too.

Hopefully he’s living it up in Australia and is too busy to tell us about it!

Seize the day, boys2

But this unusual year is changing some perspectives, I believe. Maybe it’s helping motivate a few reluctant spenders?

I mentioned a while ago I’d decided to quit my main source of income. That longstanding contract came to an end a few weeks ago. For now I’m effectively living off my investments. For various reasons I don’t really like doing this, and I don’t think it will last. But I don’t believe it would have happened at all without six months of on/off lockdown introspection.

Of course The Accumulator is also now financially free and pondering what next.

So it’s in the waters around here…

Retiree Dennis Friedman wrote this week at Humble Dollar that he hardly recognises the spender he’s become:

I woke up one morning, looked in the mirror and didn’t recognize the person looking back at me. Who is this person? It can’t be me. I’m not the same person I was five or six months ago. I don’t know if it’s the pandemic that caused me to behave differently or if I’m going through some kind of midlife crisis.

No, it can’t be a midlife crisis. I’m almost 70 years old, plus I don’t feel my life is boring, empty or meaningless. In fact, I actually feel good about myself and my life.

Instead, what I don’t understand is why I have a different attitude toward money. All my life, I’ve been a supersaver [but] recently, I’ve been spending gobs of money in ways I never would have in the past.

Dennis’ piece is a modest and self-aware reflection on how one man found he’d broke through the barrier. Worth a read if you’re in a similar position.

Meanwhile at Bloomberg Farnoosh Torabi tells us she has changed her views and now plans to die with an empty bank account – so clearly she’s gotten over the hump:

If 2020 has taught us anything it’s that life is uncertain. Through this lens, I’ve started to abandon some conservative personal finance principles.

This summer, for example, I went against the adage of “staying the course” with retirement and stuck my hand in my IRA to shed some stocks. I also bought a house in what can be considered a risky environment. To date, I have no regrets.

In my latest move away from what many financial experts preach, I’ve forgone the aspiration of leaving a financial legacy. The concept of bequeathing an inheritance just seems to make less sense today.

Instead, I want to experience my legacy by spending most, if not all, of my money on meaningful experiences and investing in the people and causes I believe in — all before I leave Earth.

I like that word ‘uncertain’ in this context.

Some people push back against the idea that Covid-19 has changed us with statistics about how few people – especially not even vaguely old people – have died of it.

I agree. That’s not the main point, however. I believe it’s by revealing how fragile our day-to-day ways of living are – by revealing the assumptions and obligations we live by – that the pandemic has given many people a few existential moments.

That is, it’s not so much the loss of life as the lockdown.

For most readers (and ultimately for me, for that matter, I hope) the full-on shift to spending down savings remains many years away.

But if 2020 has logged a carpe diem reminder into our memory banks, it yet could prove useful when that day comes.

Have a great weekend!

From Monevator

The Slow and Steady passive portfolio update: Q3 2020 – Monevator

From the archive-ator: Do you have a money mind? – Monevator


Note: Some links are Google search results – in PC/desktop view you can click to read the piece without being a paid subscriber. Try privacy/incognito mode to avoid cookies. Consider subscribing if you read them a lot!3

UK economy grew more slowly than expected in August – CNBC

Covid Job Support Scheme expanded: 2/3 of workers’ wages to be covered in local lockdowns – Which

Boris Johnson pledges 95% first-time buyer mortgages – Evening Standard

‘Space race’ sees rents and demand fall in cities as tenants hunt extra room – ThisIsMoney

Measure of billionaire wealth breaks the $10 trillion mark during Covid – Reuters

US pensions sue Allianz after losing $4bn in Structured Alpha ‘all-weather’ hedge funds – Reuters

There are signs private investors are getting savvier – Bloomberg via MSN

Products and services

New local authority green bonds tout yield of 1.2% – ThisIsMoney

Green Homes Grant: homeowners frustrated by lack of installers – Guardian

Sign-up to Freetrade via my link and we can both get a free share worth between £3 and £200 – Freetrade

Should you buy a dash cam to cut the cost of car insurance? – Which

Advice for British expats whose bank accounts will be closed due to Brexit – ThisIsMoney

Electric cars cost on average £132-a-month less to run than petrol or diesel – ThisIsMoney

Unusual homes for sale [Gallery]Guardian

Comment and opinion

Merryn: On pensions, we’re not all in this together [Search result]FT

The variable portfolio: Speculate if you must, without risking your future – Value Stock Geek

How comfortable are you holding stocks for 30 years? – A Wealth of Common Sense

Neglected child – Humble Dollar

We’re heading for a housing crash and Boris Johnson just made it worse – Independent

Luck and success – The Irrelevant Investor

ESG investing looks like just another stock market bubble – Yahoo Finance

Millionaire – Indeedably

Accountable to Darwin versus accountable to Newton – Morgan Housel

What to do if you’re a 2020 super-saver [US but relevant]The Simple Dollar

Brian Portnoy: Balancing returns with simplicity, financial independence, and peace of mind [Podcast]Morningstar

Ermine on a rant: strong in these Padawan, recency bias is – Simple Living in Somerset

Naughty corner: Active antics

The pervasive, head-scratching problem with venture capital – Institutional Investor

Why it’s so hard for fund managers to invest for the long-term – Behavioural Investment

The contribution dividends have made to one private investor’s portfolio – Maynard Paton

Comparing the fortunes of four UK firms through the pandemic – UK Value Investor

Are investors in Disney at today’s prices delusional? – Bloomberg via MSN

Resurrecting the value premium [Research]SSRN

Coronavirus and politics

Coronavirus could spread ‘uncontrollably’ over the next few weeks – CNBC

The contact-tracing app for England and Wales has only sent one alert about a coronavirus outbreak in a venue since it was launched two weeks ago, despite being used for millions of check-ins – Sky News

UK study finds over 80% of people who tested positive didn’t have ‘core’ symptoms – CNBC

Covid deaths three times higher than flu and pneumonia – BBC

Sadiq Khan says more London restrictions ‘inevitable’ [Hmm…]Guardian

Herd immunity is back on the agenda – and raising big questions – Huffington Post

Trump’s coronavirus treatment would cost most Americans $100,000+ – New York Times

The lesson from Trump catching Covid-19: with this virus, there are no magic bullets – Stat

Reviewing the science and assessing the risk of ‘long Covid’ – Institute for Global Change

Two-thirds of British voters think EU nationals should not have free movement – Guardian

Kindle book bargains

How Will You Measure Your Life? by Clayton Christensen – £0.99 on Kindle

The Looting Machine: Warlords, Tycoons, Smugglers and the Systematic Theft of Africa’s Wealth by Tom Burgis – £1.99 on Kindle

Reinvention: How to Make the Rest of Your Life the Best of Your Life by Brian Tracy – £0.99 on Kindle

RESET: How To Restart Your Life and Get F.U. Money by David Sawyer – £0.99 on Kindle

Just Fuck*ng Do It: Stop Playing Small. Transform Your Life by Noor Hibbert – £0.99 on Kindle

Off our beat

Habits in times of turmoil – Morningstar

The end of the American internet – Benedict Evans

A fun extract from Jerry Seinfeld’s new book –Vulture [h.t. Abnormal Returns]

Myside bias: The bias that divides us [Very long]Quillette

And finally…

“The correct lesson to learn from surprises is that the world is surprising.”
– Morgan Housel, The Psychology of Money

Like these links? Subscribe to get them every Friday!

  1. A.k.a. ‘defined benefit’ []
  2. And girls, obviously. Quoting Dead Poet’s Society. []
  3. Note some articles can only be accessed through the search results if you’re using PC/desktop view (from mobile/tablet view they bring up the firewall/subscription page). To circumvent, switch your mobile browser to use the desktop view. On Chrome for Android: press the menu button followed by “Request Desktop Site”. []
{ 46 comments… add one }
  • 1 NewInvestor October 10, 2020, 10:10 am

    Message from Pedant’s Corner: final salary is a sub-set of defined benefit. A move to Career average would appear to be increasingly common for those defined benefit schemes that are still alive.

  • 2 xeny October 10, 2020, 10:55 am

    A not obvious cost to the employer of the move from final salary to career average is that it removes quite a bit of motivation for smart employees to chase promotion (i.e. pull their finger out) in mid life.
    It becomes apparent that further promotion won’t make a huge difference to the ultimate pension at about the same time in life when you start thinking more about pension benefits and work/life balance.

  • 3 xxd09 October 10, 2020, 10:56 am

    Perhaps thoughts from an older investor can help?
    Wife and I now 75
    Retired 18 years ago @57
    Kids all grown up and away and financially OK
    We travelled the world -Petra,the Great Wall,Easter Island etc
    Places we never thought we would see
    Now Covid has come, my wife has a foot lesion-long walks are out etc etc-we are older
    You have 2 windows to do your own thing
    Once when the last kid leaves for University till they reappear with grandchildren-lasted about 6 years for us
    The other is retirement till old age manifests itself in your partner or you and then circumscribes your (world ) travelling
    We got a window of about 15 years
    This just a personal observation and everybody’s circumstances are different
    Motto-get on with it while you are fit-something else will appear once Covid is cleared up
    Time waits for no man

  • 4 Petepool October 10, 2020, 11:30 am

    Interesting article as usual.
    I was reasonable OK drawing down what we wanted to spend as we went along. My better half on the other hand really struggled with the fact that we were not adding anything to the pot and was very reluctant to spend above the minimum required. Eventually we resolved this paying ourselves a monthly salary that had plenty of room for non essentials short breaks away, meals out etc. In addition I get to plan and spend a big annual winter holiday as I see fit, as long as I don’t mention the cost 🙂 Works for both of us.

    As an aside I wonder how the increased level of savings that the fortunate part of the population are able to make due to Covid will impact people? Maybe people will enjoy feeling more financially secure and the household savings rate will remain high or more likely, in my opinion, they’ll be a massive blow out once we are are unlocked.

  • 5 Al Cam October 10, 2020, 11:39 am

    Couple of points:
    1) prevalence of DB pensions, I too used to think like you until earlier this week when I read:
    “In 2019, more than 9 in 10 (92%) public sector employees with a workplace pension had an occupational DB pension compared with only approximately 1 in 10 (11%) workplace pensions in the private sector being pensions of this type.”, see: https://www.ons.gov.uk/employmentandlabourmarket/peopleinwork/workplacepensions/bulletins/annualsurveyofhoursandearningspensiontables/2019provisionaland2018finalresults
    until very recently c. 80% (and rising) of working people were employed in the private sector – but I guess that is about to change.
    I have my own theory why this mis-match exists but would be interested to here any other theory/explanation.

    2) re “the mental jujitsu….”
    In the round, Brits and Americans are very bad (or good depending on your view, I guess) at spending down their assets once “retired”. Recent (from 2018, onwards) studies from the IFS and amongst others EBRI (in the US) clearly demonstrate this point. The EBRI study includes early retirees too. Given that the US has been abandoning DB schemes at a far faster rate than the UK, then they are further down the self-sufficiency road than us. What is evident from the EBRI study is that retirees without a [DB] pension do spend down some of their assets whereas those who have a pension may actually grow their assets. Overall US retirees still seem reluctant to part with much of their assets – what they seem to prefer to do is cut their cloth according to their income (SS) and live (ie spend) accordingly. Not at all sure how this will play out here, but it is worth noting that according to the OECD (amongst others) US Social Security is somewhat more generous than the UK state pension.

  • 6 { in·deed·a·bly } October 10, 2020, 11:49 am

    That mindshift change was one of the more challenging parts.

    If you’re doing it right, working full time allows a regular squirrelling away of fresh income. Topping up existing investments. Allocating new money to fun indulgences like Angel investing. Generally having plenty more cash flowing in than flowing out.

    Then one day you make some lifestyle choice changes. Chosen, or chosen for you.

    Whatever the cause, two common outcomes arise. First, less money flows in. Second, the daily grind is no longer dictating how the bulk of our waking hours are invested.

    The extra time factor often creates a void.

    What now? What comes next?

    Ermine seemed to navigate this pretty well. SexHealthMoneyDeath and Mr YFG both struggled, ultimately handing back their FIRE cards to seek out the companionship, stimulation, and structure provided by the working world. RIT appears to be experiencing a similar struggle.

    But here is the thing. This isn’t a challenge unique to the FIRE world, a visit to any group containing recent retirees (e.g. Rotary, Mens Shed, etc) will find a community of folks struggling with similar issues.

    For mine, it is more a question of psychology than finance. Something all of us will face at some stage, providing we haven’t succumbed to mortality ahead of time.

  • 7 JimJim October 10, 2020, 11:53 am

    How timely for me this article is. I was fifty five last weekend. The celebrations were a quiet affair with a few mates in the garden with a fire until the wee smalls of my actual birthday, alcohol was involved and I remember getting the chainsaw out at one point so it must have been a good night – followed by recovery and a quiet day with immediate family. Covid has changed both my workplace and the circumstances around delivering the work to a point that I found myself eyeing the final salary benefits and looking at the horrendous reductions involved in bailing before sixty. The spreadsheet was employed with all our variables and the answer came out that sticking it out for another two and a bit years would just about do it with some comfort involved in the assumptions. The first bit is the expensive bit, prior to the state pensions (Mrs JimJim is four years my senior)(and yes I assume we will get one). After that we should be sorted.
    It will diminish the cash to a minimum and eat into the stocks and shares a little but I did find the thought of spending any of it to be an unnatural thing.
    So the countdown begins, who knows what will happen in two years time.
    We, like most of our peers, found lock down a huge saving on the household budget and going back to working at work, rather than from the kitchen table, has been hard.
    Here’s hoping for a timely redundancy package and the outcome of the McCloud judgment to be favorable to my workplace pension.

  • 8 Vanguardfan October 10, 2020, 12:35 pm

    An interesting topic for sure. My belief is that people don’t fundamentally change. Those of us who derive security from having savings will tend to continue this habit. We will not stop working (voluntarily) until we are quite sure we have more than enough, and we will continue to live below our means, whatever the lifestyle adjustment required. We will die with cash in the bank, with opportunities foregone.
    Those who find it hard to hold onto their money will blow their tax free cash, they will over-optimistically spend down their drawdown pot, and they might end up taking equity release later on.
    I’m not saying one is better than the other. The latter might well have more fun…

    @xxd09. I agree that there are windows of freedom that have to be seized. The pandemic is making me more aware of this, and impatient to be able to seize opportunities. I’m planning travel for 2022….fingers crossed. But often these windows are random and unpredictable – that is the lesson of this year, for those who haven’t already learnt it from experience. Illness and bereavement can strike at any time. Also, the need to care for elderly parents can keep your window firmly shut during what might otherwise be your best chance for travel, self development, etc etc. Carpe diem indeed.

  • 9 The Investor October 10, 2020, 1:18 pm

    Don’t say nobody said this would happen:

    NHS treatment delays linked to more child deaths than coronavirus

    Seeking medical help too late during pandemic was contributory factor in the deaths of nine children, Royal College research finds


  • 10 EcoMiser October 10, 2020, 1:20 pm

    I was made redundant/retired 11 years ago. For the next six years I lived quietly but comfortably entirely on savings and dividends until pensions kicked in. It took until late 2019, slowly increasing ‘unnecessary’ spending, to convince myself that I could spend on wants as well as needs, with no reasonable chance of running out of money. Then everything changed…

  • 11 MrOptimistic October 10, 2020, 1:38 pm

    Well you could gave written this article just for me as it describes my position now I’m retired. Still have 40% of the sipp in cash, not least because I don’t know what to do about the 25% tax free element. I could take it and use the isa allowance for the two of us but then should I be investing more since the Isas are supposed to be there to be spent. Suppose I should concoct a time phased budget to differentiate between spending in the next decade and then beyond that for which investment makes sense, that would be a start, but will I ?

  • 12 Al Cam October 10, 2020, 1:54 pm

    FWIW, I reckon that most people sit somewhere between the two end-points that @Vanguardfan describes; with aspects of each category present, to a greater or lesser extent, in each individual/household. Thus – absent DB pension’s – IMO, some form of compromise/mental accounting like Petepool describes is probably inevitable as the concept of a regular pay cheque is generally familiar and reassuring.

  • 13 Vanguardfan October 10, 2020, 1:58 pm

    @TI. Nobody disputes that indirect deaths are a major part of the harm that the pandemic is causing. I’m not sure what point you’re making here? Is your argument that better suppression of the virus would reduce indirect deaths/morbidity (I’d agree with that)? Or something else?

    Clearly, there are both supply and demand aspects to the reduction in access to health care, which are not easy to tease apart, but are equally clearly both are related to the control, or otherwise, of the virus.

    The basic issue is that we run our health service very lean. Every winter there are measures put in place to cope with the normal seasonal increase in demands on acute care – this includes reducing elective or planned interventions. After the April surge, health service capacity has remained reduced, because of the measures necessary to prevent people needing treatment from catching the virus when they access it – even so we are still seeing covid deaths resulting from hospital acquired infections.

    As beds once again become filled with covid patients, this issue will obviously become worse. There isn’t any easy way round that, that I can see, in the short term.

  • 14 Vanguardfan October 10, 2020, 2:06 pm

    @alcam, yes of course there is a spectrum, exaggerating for effect (although perhaps not that much).
    I run things a bit like Petepool. I find it easier to spend if I allow myself a boundaried extra pot for luxuries. Strangely untouched this year.

  • 15 Moggers October 10, 2020, 2:09 pm

    As someone who went part time a (3 days a week) over a decade ago, I couldn’t quite manage the path of traditional FIRE due to a restricted income. I still saved – heavily – into my pension regardless and lived a fairly simple life.

    10 years later, I’m 42 and my part time income has exploded (in the good way). FIRE is now again a possibility. I’m easily on course to hit the LTA in my pension by 55 – through maxing my cash contributions alone, let alone adding further growth into the mix. Simultaneously I’m building sufficient savings outside the sipp wrapper to bridge the gap either way.

    But….I have now have *zero* intention to retire. Health and luck willing, this 3 days work, four days leisure thing is a perfect balance.

    Hell, whilst all my colleagues have chosen to continue working from home, I went back to the office for the 3 days the second they let me. Work provides structure and some form of that keeps me sane and healthy.

    My dad died earlier in the year, and I saw first hand with him how forced retirement destroyed his Joie de vivre, and left him unmotivated and without a purpose. He was a brilliant guy and it was so sad to see that happen to him. I won’t let it happen to me.

    If you can, honestly, work less than this insane 5 day week – but still work. I do the same work as I did in the full week, probably more – and there’s a good reason my income exploded because I’m a lot happier, motivated and a better worked for doing so – and that got recognized along with me pushing more aggressively for it. actually, I have to thank RIT for that – he was the one who encouraged me to get what I was worth 4 years ago. My income is now 3.5x what it was thanks to that advice and a bit of luck.

  • 16 Algernond October 10, 2020, 2:27 pm

    Hi @TI. Bit confused, as in your post you show the highly contested case-demic graph that’s being used by govt/media to perpetuate the propaganda of fear… and then you add the Telegraph link.
    @Vanguardfan – ‘As beds once again become filled with covid patients, this issue will obviously become worse…’ – do you really think this winter will have more patients in hospital with seasonal viral infections than in, for example, 2011 or 2018 flu seasons (where normal life wasn’t made illegal) especially since many of the susceptible succumbed to the Covid19 in March – May this year?

  • 17 The Investor October 10, 2020, 3:17 pm

    @Algernond — it’s only confusing if one is a zealot.

    The virus is real. It kills old people. Measures need to be taken. But they should be proportionate, and informed by our gathering knowledge as we go along.

    I reject a binary response to this issue.

  • 18 The Investor October 10, 2020, 3:26 pm

    @vanguardfan — And here’s the other faction.. 😉

    My view is mostly as I articulated in March, when I disagreed with the strategy to keep tens of millions of productive young to middle aged people entirely apart from each other, while just the week before I’d seen older people hugging and kissing each other in abundance in my local high street.

    I was always for social distancing, masks, cleanliness, measures in pubs, restaurants, venues, shops etc.

    But *full* lockdown should have been targeted, except in as much as we didn’t know exactly what was going on at the start and had fears for the NHS.

    When you look at today’s death figures versus cases it really seems proven that many millions had it in March and April. I still think most of those who died were sadly coming to the end of their lives, however unacceptable it still is to say it.

    Also for the record some people certainly did push back against the idea of deaths due to extreme lockdown. Even in the comments on this blog.

    TLDR: If and until it has a second surge, Sweden. 😉

  • 19 Ray Jardine October 10, 2020, 3:26 pm

    Xxd09….hmmm. In January, my lovely young wife and I had bookings and plans for a considerable amount of bucket list travel this year. Including visiting my son in Melbourne where he has married an Aussie girl….I was hoping to see my UK based daughter along with granddaughter…..we live in Portugal.
    We flew to Cape Town in late Feb in normality….then after a couple of weeks things started to change….lockdowns. There were many links to our travel back home, Anyone of which could have gone awry, but we were lucky. Rest of the year’s travel cancelled! Son can’t come to us, daughter would be quarantined etc…so lesson is…..if you think it….do it because you just don’t know what’s next. Read one of monevator’s recommendations….Black Swan….great book about how unpredictable our world really is and how badly prepared I am for it:)

  • 20 The Investor October 10, 2020, 3:30 pm

    @all — On reflection, we did the virus last week and annoyed a bunch of readers in doing so.

    Let’s give them a break! 🙂

    I’d say all sides have now expressed their views again pretty efficiently.

    So for that reason please don’t post more on the virus this week, on threat of deletion.

    Sorry, appreciate I started it. But as I say I think all sides covered.


  • 21 Jim Mcg October 10, 2020, 4:16 pm

    Thanks for the mention of my blog Monevator, which still stands as someday (soon) I might go back to it. I’m still struggling with the save/spend equation myself and this year I have withdrawn 4% from my investments as part of commitment that I made to try and get me into the habit. Most of it is now sitting as cash in the bank, partly because I didn’t head to the States for a holiday this year (and didn’t miss going either). I look at the bank statement and think “Buy China ETF”, and then force myself not to on the basis that it would be re-doing what I committed to undoing! And so the internal debate goes on while constantly reminding myself of the fortunate position I’m in. Thanks for the links, btw, I’ve learned loads from clicking on them over the years and also downloaded a few serious bargain books for my Kindle. Hope you get a kickback from Amazon for it 🙂

  • 22 BerkshirePat October 10, 2020, 6:15 pm

    October 10, 2020, 10:10 am
    Message from Pedant’s Corner: ”

    Pedants’ Corner, surely ?!

  • 23 Matthew October 10, 2020, 9:37 pm

    Although the wife is much more of a spender than me, I do get the feeling that there’s some kind of limit to it, I think for both of us money will give us security and time, but we’ll never be able to appreciate really expensive stuff, I don’t even enjoy travelling. By and large there’s no real oversaving wasteage if you have children because if our security money is too much for our life they will just refine their retirement age/ spending, it’ll come out approximately correct in the wash.

    Can’t think of anything better to buy than financial security or time.
    I do fall into the trap a bit of thinking I must use up my allowances, and make most use of compounding, but I have no real need to or plan to spend it

  • 24 dc October 10, 2020, 11:12 pm

    Farnoosh Torabi is a woman.

  • 25 The Investor October 10, 2020, 11:56 pm

    @dc — Oops, thank you. Corrected!

  • 26 C October 11, 2020, 9:05 am

    Another for whom this is a timely piece. For me, there are several triggers:

    1) I’ve been FI for a while and realised I was in danger of having much more to spend in retirement (like double) than I was spending annually in the run up to it.

    2)That doesn’t make much sense when there are things I could usefully spend money on now eg experiences, comfort improvements to home.

    3) I’m still working (part-time) and have a bridging fund in cash – but it would be a fairly frugal existence to survive on bridging fund until I can take my private pension.

    4) Cash like investments aren’t going to remotely keep up with inflation on the things that matter (my pension has plenty enough exposure to S&S etc without repeating the same for bridging fund).

    5) Major surgery last year, and yeah – covid.

    Hence, might as well reduce savings rate and get more of my salary spent on things that matter now.

  • 27 NewInvestor October 11, 2020, 10:25 am


    Pedants’ Corner, surely ?!

    Ha ha, quite possibly. I’m more disappointed with myself for using a capital C on the word ‘career’ for no valid reason. I’m sitting here at my desk with my service revolver contemplating doing the honourable thing. 🙂

    Merryn’s FT comment piece is characteristically chippy. Having suggested that the public sector should take a hit on their pensions supposedly in the cause of fairness, it seems to have escaped her attention that those in the private sector with DB pensions should suffer similarly – I dare say there are plenty of closed schemes with participants still looking forward to drawing their preserved entitlement. Or how about reducing the state pension so that particular (and very numerous) demographic can do their bit too?

  • 28 David October 11, 2020, 10:44 am

    @ Jim Jim, ah yes Mcloud, as I understand the decision to move everyone to the careers average in 2022 has been made. There is a consultation period ending this week which only concerns the years between 2015 and 2022. Participants are to be given the choice of staying in the 95 scheme until 2022 or remaining in the careers average which they were moved too in 2015 or later if they were entitled tapered protection.

  • 29 ZXSpectrum48k October 11, 2020, 11:52 am

    Re: “Why it’s so hard for fund managers to invest for the long-term”

    It isn’t the job of an active fund manager to invest long-term. Every investor should have already constructed a passive benchmark: a portfolio of assets whose performance, over the long-term, should best meet their target goals/objectives/liabilities, again over the long-term, without requiring the investor to formulate views on the assets’ short-term performance.

    That benchmark is that it assures that the investor’s short-term investment decisions (perhaps expressed via owning active positions or buying active or passive funds to take you under/overweight vs. benchmark) does not take the portfolio too far from what is optimal in the long term.

    So active views/tilts should be explicitly short-term, tactical etc. They should have defined stops, defined time-lines. Without these there is no risk discipline and you’re just punting. Asking active managers to be long-term will just screw around with that passive benchmark. This is the last thing you want. It’s vital to totally discretize your passive and active views. Mix them up and chaos ensues.

  • 30 Griff October 11, 2020, 11:59 am

    I often hear and read of the unfairness of DB schemes and it to be blunt really gets my goat, I very soon will be benefiting from a NHS pension when Mrs Griff retires after about 23 years. The sum we shall enjoy is just over 4 k. For that treasure she has been run ragged for just over the minimum wage ever since she moved from her cushy private sector job because she wanted to help people. DOH. Incidentally we all know that to get 4k would cost about 200k in a annuity but this is now in the ripped up world of zero interest rates. She didn’t know that when she signed up. She honoured her contract and deserves the same. Incidentally I sold my DB scheme many years ago
    and have regretted it ever since. I now put 40 percent of my wages in to attempt to catch up. Hopefully going on a three day week in Feb when /If, I reach 3 score. 4 percent drawdown should see me OK. After I buy the boat, caravanette, the big cruise, we shall see.

  • 31 Factor October 11, 2020, 12:55 pm

    @NewInvestor @BerkshirePat

    “To write a genuine familiar or truly English style is to write as anyone would speak in common conversation, who had a thorough command and choice of words, or could discourse with ease, force, and perspicuity, setting aside all pedantic and oratorical flourishes” – William Hazlitt 1778-1830 🙂

  • 32 David October 11, 2020, 12:59 pm

    I should also add that the consultation concerns when the decision by the employee is made. 1. April 2022 or on their retirement date when they will have access to figures from both schemes.

  • 33 Barn Owl October 11, 2020, 6:47 pm

    @TI Thanks for giving us a break from from the virus zealots 🙂
    Having recently started living on investments, spending money is a hot topic for me. To actually reduce your real terms net worth, you have to come to terms with your own mortality. Never that easy a thing to do.

  • 34 ZXSpectrum48k October 12, 2020, 8:53 am
  • 35 Al Cam October 12, 2020, 9:26 am

    Looks like a “sign post” to me; especially given all the words used to officially deny (ie IMO confirm) that!

    The linked [Excel spreadsheet] questionnaire possibly provides a few further clues.
    Looks like a lot may depend on banks ability to implement some combination of:
    a) very low fractional base rate (think .00001%);
    b) assorted bodges (although this is not the terminology used by BoE) – think along the lines of the clearly “lashed up” C-19 testing system; and
    c) time/cost to implement [possibly non-trivial (think millennium bug)] required system changes

  • 36 MrOptimistic October 12, 2020, 11:06 am

    Re negative rates. Negative rates are only likely to be imposed by the banks on those holding large sums of money, e.g. Switzerland’s policy:

    ‘Where negative interest rates are in force, banks have largely resisted passing them on. The exception to this is in Switzerland, where wealthy savers with a few million Swiss francs in their accounts are charged deposit fees of around 0.75%.’ (Forbes).

    However they could simply charge a fee on their accounts which would also avoid changing software.

  • 37 bloodonthestreets October 12, 2020, 11:41 am

    Negative interest rates. What problem is this meant to be solving? Isn’t it just “stimulus theatre” that actually does nothing but causes more harm than good?

  • 38 John Elkins October 12, 2020, 12:15 pm

    With regard to the mental gymnastics required to turn from being a lifelong saver into a rest-of-life splurger, what I did was to start spending my investments during my final year at work, selling a regular amount each month. Simultaneously I upped my work pension contributions, putting the same amount into my employer pension. The sweetener was all the tax and NI being saved, although my monthly pay was only a few hundred pounds. When I stopped work I just carried on selling the same amount of investments each month. It helped me a lot.

  • 39 The Investor October 12, 2020, 12:45 pm

    @John Elkins — I like that idea. Obviously it’s partly mental bucketing, but mental buckets exist for a reason. If it wasn’t for capital gains tax on unsheltered assets I might make that my plan for a decade or twos time. (For a combination of historical and fortunate reasons I have (for me) significant unsheltered capital gains that I defuse down a bit more every year…but (nice problem to have!) they have kept growing.)

  • 40 The Investor October 12, 2020, 12:48 pm

    Never say never, but I suspect the BOE is talking about negative rates to avoid actually having to implement negative rates.

    It was only a couple of months ago they came out and said negative rates were too problematic. Even in today’s topsy-turvy world, it wouldn’t be like the BOE to shift position that quickly when nothing much else has changed.

    Perhaps taking negative rates off the table took too much pressure off the front end of the yield curve? By vaguely suggesting they might still do them, a bid returns and short-term yields come down.

  • 41 Al Cam October 12, 2020, 1:10 pm

    @John Elkins & @TI:
    BTDT – albeit over a somewhat longer timescale prior to pulling the plug and with considerably less frequent sales.
    IMO, it is a good approach for many reasons.
    Personally, however, the illusory power of the buckets never “fooled” me.
    Perhaps this is because I possibly kicked it off too soon – who knows?

    Re -ve rates: time will tell.

  • 42 ZXSpectrum48k October 12, 2020, 1:33 pm

    @TI. I tend to agree that the BoE don’t want to go negative. Some on the board see it as pushing on string. The market is pricing about a 60% chance of a 25bp cut. Not now though but in about a year. Talking negative keeps that front-end of the curve nailed down and they hope this helps to keep the long-end under control. It’s the long-end that matters.

  • 43 Matthew October 12, 2020, 9:33 pm

    How about negative rates on premium bonds? (penalty bonds!) Free cash storage for most and only an unlucky few would pay for negative prizes. Maybe smallish negative prizes enforcable by hmrc

  • 44 The Investor October 13, 2020, 8:30 am

    @Matthew — Hah! But surely you’d still have a few big (negative) prizes in place, too? One unlucky customer a month gets visited by Agent Million and her team of bailiffs, who clear the place out and put the house up for sale…

  • 45 Matthew October 13, 2020, 10:31 am

    @ti – lol there may have to be a larger number of these negative premium bond prizes to make up for defaults, you could even have a hybrid of positive and negative prizes, so it could have an attraction as a “make it break” option with more positive prizes funded by the negative ones.

    With negative prizes Ns&I could have an unlimited cap for pbs as opposed to 50k, so there could be attraction in it for capital protection for cash rich individuals/organisations where a -1m prize isn’t the end of the world and they just want the benefit from the median prize being less than the mean. In a very negative rate environment (say -5% or more hypothetically) – this could actually be quite an attractive option, to be paying nothing, it’d be an option only really suitable for the rich

    Could imagine needing a credit check to open a savings account!

  • 46 Financial Samurai October 21, 2020, 2:41 pm

    I’m definitely ready to spend all my money.. and have been spending loads on food delivery, home remodeling, and buying a new home.

    The home is so valuable now since we spend so much time in them.


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