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Weekend reading: Don’t mess with pensions. They’re working.

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What caught my eye this week.

Ten million UK workers will increase their pension contributions from today, which should mean a more prosperous retirement for them down the line.

No, Monevator didn’t just benefit from a promotion from Oprah Winfrey or Richard & Judy that delivered us few million extra readers overnight.

In fact many of those millions who are about to spend less and save more are probably only vaguely aware of the fact. That’s the genius of the pension auto-enrollment scheme – started in 2012, and the true reason for the imminent extra saving.

Auto-enrollment makes it easier to do the right thing by doing nothing. So far the opt-out rate is a mere 9%. Still, I think it’s fair to say the higher contribution rates are needed – and they need to stick – to deliver these workers the retirement income they’ll expect.

This could yet be a challenge. The new contribution rates may look measly to some super-savers around here. But they will take a meaningful chunk of change out of pay packets, as this graphic from the BBC illustrates:

Higher personal tax allowances – also starting today – will ease the pain. Head over to the BBC for the full story.

Pensions and property

Even the invariably spiky Merryn Somerset-Webb in the FT hails the success of auto-enrollment, and describes UK pensions as in “fabulous shape”.

The UK pension system is well-funded by international standards, and auto-enrollment means our level of pension assets is increasing faster than elsewhere.

There’s just one potential snag, Merryn warns, which is that some wonks believe pension savings should be accessible to young people in need of a house deposit.

No no no!

A pension is a backstop. It comes with tax relief for the very specific reason that it is designed to stop you being reliant on the state in your retirement.

Once the money is in it is in, you can’t lose it gambling or in bankruptcy; you can’t create negative equity with it; and you can’t fritter it way on the internet (not until you are 55, anyway).

Enabling pension access to pump up the housing market might seem a good way to address housing inequality, Merryn scoffs, but it would destroy the integrity of the pensions system.

I agree. Lifetime ISAs are mutant hybrid enough!

From Monevator

The Slow & Steady Passive Portfolio: Q1 2019 update – Monevator

From the archive-ator: Why I don’t use the FIRE acronym for financial freedom – Monevator

News

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!1

New year taxes: The key changes [Search result]FT

Super-rich pay average 10% inheritance tax, versus 20% paid by wealthy – Guardian

House prices hold up better than expected amid Brexit doubts… – Guardian

…or perhaps you prefer to focus on the 1.6% fall in March – ThisIsMoney

Bridgewater’s Ray Dalio warns US inequality risks social conflict [Search result]FT

[US] super-savers spend less on housing – Market Watch

Hedge funds raise minimums as costs rise and returns dwindle – Institutional Investor

The US market doesn’t look that outrageously expensive – via Business Insider

Products and services

‘Bundled’ Amazon product reviews mislead consumers – Guardian

MPs demand more scrutiny following high-profile mini-bond wipe-out – ThisIsMoney

Pension Partners: 80% of ETF assets are managed by three companies – via Twitter

End of the line for Nationwide’s 5%-paying regular savings account – ThisIsMoney

Ratesetter will pay you £100 [and me a cash bonus] if you invest £1,000 for a year – Ratesetter

Online shopping: ASOS to crackdown on ‘serial returners’ – ThisIsMoney

Do tactical allocation funds deliver? – Morningstar

Comment and opinion

Fees versus fines – Morgan Housel

What’s your next dollar worth? – Khe Hy

Buy yourself a f*cking latte – Barry Ritholz

Are your annual return expectations realistic? – MoneySense

How some of the world’s oldest people make their money last – Next Avenue [via AR]

Getting real – Humble Dollar

The mystery of preferring a ‘spend only the dividends’ strategy – The Retirement Cafe

How can you best communicate what risk means to you? – The Value Perspective

Key information I’d like to see in a KID – IT Investor

An interesting look at how a US active investor reviews his fund portfolio – M.F.O.

O tempora! O mores! – Simple Living in Somerset

JP Morgan CEO Jamie Dimon’s annual letter is usually worth reading – JP Morgan

Some thoughts on a seed investment gone right – Points and Figures

Lessons learned on successful start-up growth from an AirBnB insider – Medium

Brexit

A shambles on which the sun never sets: How the world sees Brexit – Guardian

The United Kingdom has gone mad – New York Times

Anger and frustration: How Brexit is affecting our mental health – Guardian

89-year old Betty Boothroyd delivers blistering Brexit attack – via Twitter

Robert Peston shows Boris Johnson doesn’t understand single market – via Twitter

Nicola Sturgeon notes Jacob Rees-Mogg’s hypocrisy about our EU power – via Twitter

A video game version of Hard Brexit [Video] – via Twitter

Brexit’s macho drama queens set to be knocked out by reality – Guardian

Kindle book bargains

Eat Well for Less by Jo Scarratt-Jones- £1.99 on Kindle

What You Get is What You See by Alan Sugar – £0.99 on Kindle

Off our beat

Demographic time-bomb: Finland sends a warning to Europe [Search result]FT

Recycling isn’t about the planet. It’s about profit – Slate

The share of Americans not having sex hits a record high – Washington Post

This is Boring: The niche London conference that became a hit – Eventbrite

10 animals being eaten into extinction – Guardian

Arms Sales: US vs USSR (1950-2017) [Video]Visual Capitalist

And finally…

“The world of work today is overflowing with systems, processes, tools, and assumptions that are deeply flawed and that push directly against our ability to express what is unique about each of us in the work we do every day.”
– Marcus Buckingham and Ashley Goodall, Nine Lies About Work

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{ 42 comments… add one }
  • 1 JimJim April 6, 2019, 6:42 am

    @TA … As you do, I applaud the minister who introduced auto enrollment, it is such a positive thing for all our futures. The level of financial ignorance I had at the age of starting work makes me ponder how I got where I am some-days… (some luck, a following wind and a career choice with a good final salary pension that I accidentally didn’t opt out of.. and yes some of my co-workers did! , Discovering investment…) This financial ignorance still exists widely in society, most people at the age of eighteen are immortal, hell bent on finding a partner at any cost and “ripping it up large” whatever that means.
    What worries me is that this or future governments will look to all this pension wealth and, firstly, bring in means testing for the state pension, then let inflation erode it, then argue that nobody was using it anyway so let’s get rid of it altogether progressively increasing taxes by stealth and removing an important safety net that is essentially “public” replacing it with a “private” scheme benefiting investment firms in the city. I cannot tell the future but I can say that financial nouse is not a universal attribute, the losers in this scenario will be hurt.

  • 2 JimJim April 6, 2019, 7:38 am

    @TA… BTW, best links in weeks! JPMorgans 63 charts is just too much info for one sitting, Go Betty Boothroyd! Visualising arms sales with a proper sound track and simple living in Somerset all made my Saturday morning. Thanks again.

  • 3 A Way to Less April 6, 2019, 8:32 am

    Wow, people are actually suggesting pensions should be accessible for housing? Let’s hope that idea ends up where it belongs!

    Agree with JimJim above with the concern over intentions around the state pension – particularly with means testing. We’re ignoring the state pension in any of our calculations but would still be a kick in the teeth if it was taken away.

    Thanks as always for the links, happy weekend 🙂

  • 4 Gentleman's Family Finances April 6, 2019, 8:37 am

    Private pensions and auto enrollment are a bit funny since we also have the state pension to rely on (and benefits like housing benefit and pension credit) but there are still lots of people coming to retirement age with giant mortgages (without the potential to ever.l realistically being mortgage free) and few assets. And those are the ones who benefited from massive house price inflation.
    The future looks even worse and the predictions for people retiring in 10-20-30-40 years time look even worse.

    It’s the realisation that retirement is an unaffordable luxury (for all) in 2005 that made me think of FIRE (or just saving and investing with an aim to escape it all).
    Fast forward 15 or so years and the population are still sleepwalking into an enpoverished old age.
    Financial Independence is my escape route but it’s the road less travelled.

  • 5 Norfolk April 6, 2019, 8:52 am

    I would echo those above so far, pensions are the last safety net when we’re old and helpless, so should be untouchably sacrosanct. With real incomes stagnating or falling for most, while asset prices are inflated by unprecedented central bank money printing, it’s becoming harder to become FI. You probably now need years at a high salary, no student debt and enough discipline to be immune to peer pressure on a lot of frivolous spending. But, there are also two requirements not often remembered, the assumption that the state will have your back with NHS and pension basic needs if you fall on your face at the end.

  • 6 Gaz April 6, 2019, 9:10 am

    Why is opt out even a thing for pensions? It seems too risky to even allow it, surely if will cause the state more problems down the line if they end up having to support people later on in life?

    Also, has TI ever done any introductions to active investing? I’ve now got my access to Freetrade so the world of stock picking has been opened up to me!

  • 7 The Investor April 6, 2019, 9:55 am

    @all — I find trying to divine the future of both the NHS and the State Pension definitely sits in the ‘too hard’ pile. One can look at future funding requirements and think it looks unsustainable, and on the other hand we have discussions of things like a Universal Income as required to redistribute wealth in the face of a job-destroying robot revolution. The only practical solution seems to be to hope for the best and plan for the worst (within reason, and understanding the life your living now does deserve to have some spending done on it so preferably don’t live like a monk to be a richer monk in older age!)

    @Gaz — There are some active investing pointers/articles in the distant archives but there’s no systematic overview. As Monevator has found its niche (and I’ve grown ever more skeptical of most people’s active investing suitability) I’ve really tried to resist writing about it in recent years. If I do active investing in a big way now it’ll probably be behind some sort of paywall, as much to keep people off the subject! 🙂 Obviously the house advice is it’s better not to try. With that said I think allocating 5-10% to a side account and giving it a go won’t do any harm and may teach some useful lessons. (If you find you’ve got a knack for it and you enjoy it, good to know, if as is more likely you discover it’s very easy to underperform, nothing like seeing for yourself. 🙂 Strongly suggest you keep notes of why you make every Buy and Sell decision and track your returns to avoid self-delusion, which is all too easy.)

    @JimJim — Cheers. I’m @TI though. (The Investor), co-blogger is @TA (The Accummulator.) One day perhaps I’ll blackmail him into doing these links, but to-date he’s never had the pleasure! 🙂

  • 8 JimJim April 6, 2019, 10:00 am

    Caught the gaff late and can’t edit, my apologies @TI

  • 9 Gaz April 6, 2019, 10:57 am

    @TI I understand, my active trades are purely going to be for ‘fun’ and with amounts I’m comfortable losing. That said, my first ETF buy was for Vanguard All World, so I think the phrase ‘you can take the man out of Monevator, but you can’t take the Monevator out of the man’ applies 😉
    I’ll try to find some articles – although I can see myself investing purely on emotional and irrational feelings – such as buying Tesla just so I can say ‘I’m a part of it’. It’s going to be an interesting adventure for me I think…
    P.S I noticed on your broker comparison page, it says “Update: 5 March 2009” – is that meant to be 2019?

  • 10 The Investor April 6, 2019, 11:06 am

    @Gaz — Which page is that? I’m seeing 2019? Cheers!

  • 11 Matthew April 6, 2019, 1:24 pm

    Why not allow you to rent a house your pension owns? That way it ticks both boxes

    Low earners need to consider any loss of pension credit they might face if they have an incomplete NI record but still a separate pension. They also should consider the impact if nursing home fees – its ok if you’re either very rich or entirely dependent on the state, anything in between will just be taken away by means testing, you can see why people don’t work, and how the housing benefit system punishes homeowners

  • 12 The Rhino April 6, 2019, 1:24 pm

    @Gaz – I opted out! 😮

  • 13 Gaz April 6, 2019, 1:46 pm

    @TI the one here referring to the Broker Compare tool: https://monevator.com/two-ways-to-help-you-find-the-best-online-broker-or-investment-platform/

    @The Rhino Do you mind me asking why? What’s the benefit to it?

  • 14 Factor April 6, 2019, 1:56 pm

    @TI

    Having had direct experience of it myself (my 20k net/annum occupational pension is split between me and my ex, and obviously I only receive the single person’s state pension), I’ve been thinking for a while that it would be useful for a “legal eagle” to set out for Monevator readers the ins and outs of pension sharing on divorce/separation, e.g. the little known fact that for actuarial reasons women fare worse than men.

    Not being a SIPP person, I have no idea how pension sharing affects those who are, but I think this information would be beneficial for readers generally.

    Do you have an expert contact who could scribe a relevant article?

  • 15 ZXSpectrum48k April 6, 2019, 2:06 pm

    @Gaz. In 2012, I decided to trade my ability to contribute any more to my pension in return for protecting my pension LTA at £1.8mm. Any further contributions, however small and whether from my company or myself, would cause such protection to be invalidated. Hence I need to opt out of auto-enrollment.

    While auto-enrollment is probably a good thing for your long-term financial well-being, it does require employees to give up a proportion of their pay now. For a minority losing say 4% of your cashflow could well make the difference between paying the rent and being on the street. So I suppose the opt out needs to be available.

  • 16 The Rhino April 6, 2019, 2:24 pm

    @Gaz – I think it was something to do with salary sacrificing into a SIPP and employer NICs. I salary sacrifice quite a large % of my income into a SIPP and get the employers NICs added in on top in a bid to minimise IT and (employee) NICs (I sacrifice down to minimum wageish levels). Its quite a sweet setup and I want to make hay while the sun shines, so the standard setup (I think we went with NEST) didn’t work for me, hence the opt out. I’m pretty sure we all opted out (theres only three of us) though I think its only me practicing the extreme salary sacrifice… I had to go through the admin of enrolling then immediately opting out if I remember rightly. To be honest its a ballache admin for tiny companies.

  • 17 dearieme April 6, 2019, 2:52 pm

    State pension & employment opt out: try scrolling down to comment #8

    https://forums.moneysavingexpert.com/showthread.php?t=5986596

  • 18 Willy April 6, 2019, 2:57 pm

    I’ve checked my state pension entitlement and it says that I’m on track for the full pension based on 35 years NI contributions. However, I have also been Contracted Out on both a GMP and Protected Rights basis during my working life and have a C.O.P.E (Contracting Out Pensions Equivalent) pension of about £35 per week. I asked if the C.O.P.E would be deducted from my State Pension and was told no, I’m on track for the full amount. I asked why this was, since Contracting Out meant lower NI contributions (and that was the whole idea about a C.O.P.E. deduction), but was again told that was all taken into account.

    Does anyone else have this? Having been Contracted Out, but the C.O.P.E not being deducted from their State Pension?

  • 19 Mr Blue Shoes April 6, 2019, 3:04 pm

    Annoyingly the increase in the auto enrolment minimums has had a negative effect for me. My company has taken it as an opportunity to grab back employer NI savings in our salary sacrifice scheme which they previously shared with the employee. These amounts can be significant when you salary sacrifice large %ages. 🙁

  • 20 The Investor April 6, 2019, 3:40 pm

    @Gaz — Thanks, fixed now!

  • 21 Vanguardfan April 6, 2019, 4:07 pm

    @willy. When the new state pension came into effect (April 16 iirc) everyone had an individual ‘starting amount’ calculated, which was the higher of what you would have accrued to that point under the old and the new systems (ie two calculations done and the highest value credited to you). If that starting amount is less than the maximum new state pension then you continue to accrue pension entitlement for each year’s NI contributions. If more, you can’t get any further pension benefit.
    The starting amount under the old system would have included any state second pension you might have accrued, as well as being reduced for any years when you were opted out.
    So it’s perfectly possible to have accrued the maximum, or still have time to do that, despite a period opted out. (some people retiring now will actually receive more than the full amount due to state second pension contributions, but with time, this will apply to fewer people).
    I hope that makes sense. The system is complicated, but basically, your situation is not unusual.

  • 22 Willy April 6, 2019, 4:22 pm

    Hi Vanguardfan, thanks for the detailed reply. Yes that makes sense. I’m also hoping they won’t think of means testing it either!

  • 23 Rob B April 6, 2019, 5:24 pm

    In my wife’s case, auto-enrolment has been an excellent initiative as there was no way her boss would have considered contributing to her pension. But (and sadly there’s is a but) all is not so rosy.

    About a week ago when planning for the 2019-2020 tax year she asked me to look a little deeper into her auto-enrolled pension with NEST. Sure.

    WOWZERS. The charges. 1.8% for the fund with a 0.3% OCF. 2.1% per annum for her pension. The opening line in the link below… ‘NEST is a great value pension scheme’. You must be joking.

    https://www.nestpensions.org.uk/schemeweb/nest/aboutnest/nest-charges.html

    I will do some more digging to make sure I’m not missing something but most probable outcome is a swift transfer to the AJ Bell platform (0.25% annual fee) and VS60 or VS80 (0.22% annual fee). Annual fee saving of 1.63% – or 0.22% of current fee.

  • 24 MrOptimistic April 6, 2019, 6:23 pm

    @Willy. I have a Contracted Out Money Purchase fund COMP from the time I was contracted out. As I accrued some state second pension and had the maximum years the 2016 changes did not affect me as Vanguardfan explains, so I get a bit more than the new pension offers with the COMP fund in addition. The COMP fund doesn’t impact the basic state pension other than through years accrued, but some second pension (SERPS) is lost so it’s not money for nothing.

  • 25 The Rhino April 6, 2019, 9:36 pm

    @RobB – ah you just jogged my memory of NEST there, yes I did wince when I first looked up their fee structure. However, just adding the 1.8% to the 0.3% isn’t right if you’re trying to work out the total fee. It’s probably better to think of it as starting at 1.8% then tending toward 0.3% over time. But for sure, its still not competitive.

  • 26 Rob B April 6, 2019, 9:50 pm

    @TheRhino. Thanks for pointing this out. I’ve realised the error in my ways! Reading too quickly.

    It’s a 1.8% contribution charge for each new investment.

    So for an £80 investment will be £1.44; a £100 investment will be £1.80 I think. Vanguard (for example) charges a flat £1.50 for an index fund no matter the value.

    So not as bad as I first thought but there are transaction costs on top I think.

    https://www.nestpensions.org.uk/schemeweb/dam/nestlibrary/the-effect-of-our-costs-and-charges.pdf

    Still looks expensive to me…..

  • 27 The Details Man April 6, 2019, 10:39 pm

    @Gaz – part of the reason for the opt-out is for people who didn’t want to contribute towards a pension or for people where it wasn’t advisable to be auto-enrolled (such as ZX’s example with LTA protection or The Rhino’s better pension arrangement). Another reason was a concern for low earners who might find contributions unaffordable. The good news is that recent research shows that the increases in the auto-enrollment rates have not had a detrimental impact on people’s finances. (Nest Insight)

    @Factor – Pension sharing and divorce would make an interesting article. Something which, with TI’s blessing, I might be able to put together.

    @willy – Vanguardfan has it spot on. Calculating your Starting Amount will guide you as to how your state pension entitlement is being calculated. Whether it’s based on the Old State Pension or the New State Pension. Sadly, it is mind-numbingly complicated.

    @Rob B / The Rhino – Nest charges are 0.3% per annum plus a 1.8% charge on new contributions. Overall, the charge is aimed to be around 0.5%pa over the long-term for a saver. This is cheaper than a lot of master trust schemes but more expensive than many occupational schemes. There are two reasons for that. First, Nest has a Public Service Obligation. This means it must offer it’s services to any employer for free. Most occupational DC schemes split the cost between employee and employer, thus the employee gets a lower fee. Second, Nest was designed to pick up many of the ‘undesirables’ – employers and savers who wouldn’t make money for the big insurers. Back in the day, these people were just not able to get an occupational scheme. The typical Nest pot is much smaller than your typical occupational DC scheme and the vast majority of employers are small businesses (1-5 employees). p.s. Nest transaction costs are very low, from memory they are roughly 0.06% – these are taken into account in fund performance.

    A final thing to add. Whilst the contribution rate is going up to 8%, most people contribute much less. The maximum total percentage is 7% (£3,510/£50,000). That’s because contributions are only made on amounts between the Lower Earnings Threshold (c.£6,000) and the Upper Threshold (£50,000). You have to earn at least £10,000 (the Trigger) to contribute anything. There’s broad agreement that the Lower Threshold and the Trigger should be scrapped so that contributions start from the first pound. This means more people saving and in a greater amount. It also reduces the admin burden on employers and prevents multi-job workers falling through the gaps. However, the Government have said they’re not going to consider implementing this change until the impact of the last round of auto-enrollment increases is known (i.e. the 8% just brought in). So the earliest for this change would be 2020.

  • 28 Mathmo April 6, 2019, 11:45 pm

    Thanks for the links, TI. Enjoyed the Amazon and ASOS stories, and saw the dividend story as it rumbles on in the comments on the SWR article.

    More pensions saving must be a good thing — otherwise the burden on the state will be extreme as the population settles into an older profile. The fact that it’s still not quite enough shouldn’t detract from the fact that it’s a good start. Could you use a SIPP wrapper to buy a house for personal use? I don’t see why not — although you don’t get to use all that lovely tax protection (unless PPR relief is going away (as it should)). But then we’re house-ownership mad in this country, apparently. Build more, make renting more attractive, and chill.

  • 29 Gaz April 7, 2019, 12:00 am

    @ZXSpectrum48k @The Rhino @The Details Man
    Thanks for the replies, interesting to hear different ways to go about it. I guess the main thing is that opting out is a conscious decision, and one that requires a financial plan to back it up

  • 30 Chris April 7, 2019, 6:35 am

    I agree with the others – wonderful set of links this week. It’ll take much of the week to explore them all!

    Don’t mess with pensions? That’s the fear, isn’t it? Of them being raided by a cash strapped future Government (probably by stealth) or the state pension either ever receding into the future via increases in entitlement age or slowly being killed via means testing/inflation etc.

  • 31 hosimpson April 7, 2019, 9:32 am

    In the face of a job-destroying robot revolution, a move to private pensions, invested in the market and hence well placed to benefit from said revolution, is not necessarily a bad thing.
    The issue that remains to be addressed is this: given the robot revolution, do we really still need the 2.1 children per woman? If all the “muscle”, “nimble finger”, and “arithmetic” jobs can be done by robots, I’d advocate for a society of, say, 1 billion well fed, well educated, well adjusted people living in a happy utopia on a green and healthy planet. Having fewer people would mean more equality. Crazy as it sounds (and I am in no way wishing for a pandemic!), the plague did wonder to the fortunes of the surviving peasants across Europe by effectively dismantling feudalism. I wonder when people will realise that having their second, third, etc. child hurts the prospects of their first born.

  • 32 Factor April 7, 2019, 12:01 pm

    @The Details Man #27

    Thank you.

  • 33 The Accumulator April 7, 2019, 12:18 pm

    @ hosimpson – according to Hans Rosling’s Factfulness, birth rates are plummeting the world over, though seems to be driven more by female education than robots. Could take a while to get to your 1 billion without the plague. Still, crispr, eh?

    Re: private pensions and robots/advanced AI. Say the job-destroying revolution is led by a company that’s not listed on the public stock markets. Say that company destroys not only jobs but its public rivals that can no longer compete. Where does that leave private pensions?

  • 34 The Rhino April 7, 2019, 2:28 pm
  • 35 JimJim April 8, 2019, 6:22 am

    @Hoisimpson @ The Accumulator et al.. Even though the birth rate U.K is dropping world population is expanding at an ever increasing rate. Abject poverty is not… https://en.wikipedia.org/wiki/Extreme_poverty#/media/File:World-population-in-extreme-poverty-absolute.svg
    Funny how the reduction in extreme poverty coincides neatly with the rise of computers and robots in business???

  • 36 Anonymous coward April 8, 2019, 10:38 am

    Does anyone have any comment on “The mystery of preferring a ‘spend only the dividends’ strategy” in the links? Does it make a difference that it is US focussed? I sell myself the idea that in spending only natural yield I am sort of getting a free ride and preserving 100% of the capital for my children. Plus, topslicing and such create a nightmare of a CGT issue for stuff outside sipps and isas. Is this a delusion?

  • 37 The Investor April 8, 2019, 10:51 am

    @AC — There are a few comments in the comments to the recent SWR article here, after @TA posted the link:

    https://monevator.com/why-the-4-rule-doesnt-work/

    I believe that if you can afford it that spending only the income is a credible strategy. However some caveats:

    Firstly, I nowadays think most people doing so should be using funds (passive or say equity income trusts) not individual shares, where they’ll likely pick badly and take on too much risk.

    Secondly, I don’t believe it will necessarily lead to higher returns or a higher SWR. People sometimes ask me “Where is the evidence that living off dividends results in better returns than selling capital”. I offer none; that’s not the point. I think sometimes it may do better and sometimes it may do worse. Financial theory assumes the returns will be the same (ignoring taxes). I’d err on assuming slightly worse, probably, as a ‘cost’ of the strategy.

    Finally, the article concludes some people ‘just like it’. This is to me the entire strength of the strategy. It’s not ‘merely psychological / behavioural’. It is *wonderfully* so.

    I believe most people given the choice would rather not be faced with selling down capital / shares into their declining old age, perhaps in a bear market. The hardcore sell-the-capital crew (like my own esteemed co-blogger) plan for this as if it’s straightforward; in reality relatively few retirees have ever lived this way, certainly not via a planned SWR.

    But make no mistake — living off the yield requires more money, will likely leave lots of capital on the table, and there’s no reason to *presume* an extra / higher return.

  • 38 Anonymous coward April 8, 2019, 10:58 am

    Thank you! Nice and clear.

  • 39 MrOptimistic April 8, 2019, 3:58 pm

    @AC, I have just been reading the newest ‘ must read guide for UK retirees’ as plugged by the daily telegraph, ‘ Your Retirement Salary:….’, Dyson and Evans. They are ploughing the same furrow albeit supplemented by selling up to 1% of your holdings ( not by value).
    I suspect a lot of us are caged by the old nostrum of not spending your capital, and if you do you are a spendthrift and forging ruin. Dates from the Jane Austen era when rentiers lived off gilt income and yes, spending the capital would be to the detriment of the future in a time when people were judged by their capital, adequate income being assumed.
    As far as I can judge it, pensions are savings intended to be spent in our old age ( or probably older age to get past pc filters). Judging how to spend down the capital to maximise enjoyment for a limited risk of running out is what is exercising the research. The idea that we should horde the capital at the expense of current utility and risk distortion of the portfolio by filtering out low yield for the sake of the ‘natural yield’ juju doesn’t make sense to me.
    Dividends certainly aren’t a free ride, as the link tried hard to explain.

  • 40 raluca April 10, 2019, 12:51 pm

    @JimJim, actualy the world population is increasing, but at a slower and slower pace.
    https://data.worldbank.org/indicator/sp.pop.grow
    The fertility rate (number of children per woman) is decreasing more and more and for example India is almost at the rate of replacement – the rate where the population will be stable. https://data.worldbank.org/indicator/SP.DYN.TFRT.IN?locations=IN
    Which nicely corelates with the increase in female literacy:
    https://data.worldbank.org/indicator/SE.ADT.1524.LT.FE.ZS?end=2011&locations=IN&start=1981&view=chart

  • 41 JimJim April 10, 2019, 7:19 pm

    @raluca, Nice chartage, and yes, things seem to be slowing at the moment with population growth a lot of which can be attributed to increased longevity. I think that means we both agree things are getting better at the bottom of the poverty spectrum, the education and inclusion of women in general and the world economy as a whole. Amazing how linear it all is, world events seem not important to progress perhaps.
    Jim

  • 42 raluca April 11, 2019, 5:40 am

    Yes, absolutely, things are getting better at the global bottom, both in absolute terms – we have a much better life than our grandparents – and in relative terms – inequality is reducing among countries, and the global poor are getting a lift out of that.

    My reasoning and probably most others about the fertility rate plummeting being correlated with female literacy and not increased longevity is because women can only have children for a limited amount of time.
    If from 12 years to 18 years a woman is in school, that is about a 15 percent of her fertility years. An if you consider that between 35 and 45 getting pregnant is harder, then really, that 6 year period spend in school has a huge impact on the number of children she will end up having, it’s probably not a 15% reduction, more like 25%.
    Not to mention that actually having an education will allow her to work outside of home and just present her with more options for herself, and that also cuts down on the number of children.

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