In God We Trust

What do estate agents, used car salesmen and fund managers have in common? Quite a lot, clearly, and none of it complimentary, but the thing that strikes me is their tendency to advertise and stick a picture of themselves onto it as if this is supposed to make us trust them more. We’re always treated to a picture of Neil Woodford in any article talking about him, even those recent ones where he’s trying to explain why his funds are going down the toilet. No doubt we could attach a speech balloon to all of them, stating “I’m in for the long term.”

If there’s one thing that’s lacking in the financial industry it’s this key word, “Trust”. Which is ironic, given the whole monetary system totally relies on it. As it says on the dollar bill “In God We Trust”, in lieu of anybody more credible being available. Even before 2008 there were very few of us who innocently handed over money to the big investment companies safe in the knowledge that they’d do their best with them instead of gambling them in the giant casino that the stock market so obviously is. But what choice do we have? Hand them to real estate agents instead? Which, actually, was exactly what millions of us did, and still do, as a preferred alternative.

I often wonder what people who aren’t interested in finance – i.e 99% of the population – think of the financial industry? Before I decided to take charge of my own investments, I really thought that stocks and shares was rocket science (and bear in mind I studied economics for a year at University). I still think that there’s a desperate desire to make out that investing IS actually rocket science, and that your average hedge fund manager is considerably more intelligent than you, despite mountains of evidence to the contrary. Even within the independent financial blogs I read, I sometimes have a sense that there is an underlying hope (need, almost) that, actually, investing is quite a complex system with underlying patterns and trends that can be analysed, understood and, if you have the right balance of smarts, predicted. What a joke. Who can predict the future of anything? It’s a massive gambling system, pure and simple, with as many wideboys, touts, crooks and charlatans involved as you’d find at your average night at the dogs. If not more.

So what can you do, given this situation? I invest a very small amount of my own cash into Zopa in the hope that they’d be an alternative to the financial establishment, but do I trust them with the cash? Well, no more than the next institution I don’t suppose, and possibly even less. I mean, who are they lending my money to? I have no idea what their lending criteria is, how it is tracked, monitored, measured, none of it. I have to let them get on with it and hope for the best, but at least I went into this relationship with my eyes open. If I get no return on my money, or even a loss on it, I see it as a conscious choice I made. I did it because I wanted to encourage a challenger to the status quo of the financial system and, if they buggered it up, there was at least some awareness that this could happen. This isn’t  “trust”, but it isn’t doubting suspicion either.

Needless to say, I have very few managed funds due to my belief that I can’t really trust a guy with a bonus riding on his performance to manage my money with my best intentions at heart. In this context, I kind of trust computers and index funds more, I suppose, a supposition which, when I think hard about it, should send me gibbering into the street. Trust computers? Am I serious? So nix that too on the Trust Index.

I do trust my mattress when I’m lying on top of it, but the real fact of inflation makes this option unattractive as somewhere to put my savings. Government bonds seem similar at the moment although a cynic like myself should also condemn this option as farcical. Trust the government?

It seems that I’m left with one option when it comes to money: trust myself. If I accept that, then when I’m doling my cash out to Fidelity, Zopa, Alliance Trust, Standard Life, whoever, well, I warned myself, didn’t I? I took on the responsibility of making a decision and had to trust myself that I’d done enough learning to make the call. At the very least, there’s a good measure of satisfaction in being able to say that, whatever way the ball bounces.


Old Age Doesn’t Come Itself

I read the other week that a baby born in Britain today can expect to live beyond 81 years of age. In Japan, it’s 83 and scientists there have proposed that people between the age of 65 and 75 should no longer be considered “elderly”.

Good news, I suppose, although the cynic in me sees government think tanks all over this wondering how they can use it to push the state pension out to 75. It wouldn’t surprise me in the least though to think that in fifty years’ time, it’ll have reached 90 – if it exists at all at that point.

All the more reason to plan for a long retirement and, as I’ve mentioned before, there’s not a day goes by where I don’t say a wee prayer of thanks to whatever inspired me to start really saving for the future when I turned thirty and, even more, signing up to a Defined Benefit pension when I started work at 23 when I didn’t even understand what that was.

As ever these days, I’ve been doing some work on my pension projections and wondering (a) how long I should plan for and (b) how I should phase income as the years progress. It’s a bit disconcerting doing this, as one of the first questions to be faced is your lifespan – should I plan to see 85, or 90? Do I even want to consider the quality of life at 95, when I might have to retitle my blog Death, Death, Death, Death? Then the second question is what kind of life will I be leading if I do see 85, or 90, or longer?

One rule of thumb I thought about was that if everyone defines “old age” as beginning twenty years from your current age, then I should want to maintain my current lifestyle, and expenditure, until I’m 73. At least for this snapshot projection – I realise I can’t extend that rule indefinitely as the years pass by. It seems to me, however, that there’s just no way I’ll be spending as much at age 73 as I do now.

But, as I project forward through the years, wouldn’t a sensible thing to do with the saving on the mortgage be to bank it instead for health provision? We have friends in their late sixties who have top notch medical insurance (and boy have they been thankful for it recently, following a couple of serious scares and operations.) Their joint policy costs them a cool thousand pounds a month. Okay, that’s maybe top end, but I mentioned recently that some root canal work I had last year cost me the best part of a grand. If there’s one thing I’d like to take into old age, apart from my marbles, it’s my teeth. My mate is currently getting a tooth implant and is not looking for any change out of almost two thousand pounds. He feels it’s worth it though and I suspect he might be right. I think if there’s one thing I asked my parents that they really wish they didn’t have in old age the answer would be “Dentures”.

Health is a touchy subject, especially in Britain. The press is always harping on about the state of the NHS and, through personal connections including my 77 year old mum, I can attest to most of what is written. The social care side of our current system must be breathtakingly expensive – my mum receives three healthcare worker visits per day, seven days per week. What’s the cost of that?

Then I remember my dad, who suffered from Parkinson’s and was on 22 tablets a day for the illness and its complications. Not to mention the physiotherapy, the visits to hospital and GP, the call-outs for the community nurse. All this was paid for by the state. The only thing that wasn’t was my mum, acting as his carer at the time, although I think even she eventually applied and received an allowance for that too.

The costs of funding the NHS are inconceivable at the moment and downright terrifying when you think of the future. You just have to visit a general hospital to understand the challenges we face. Once you’ve negotiated your way past the smokers in the carpark, start counting – how many people do you see that are overweight? (I generally don’t count my reflection in the window.) Is it two out of three? How many are over sixty? Is it eight out of ten? More than that? The system we have just cannot cope, and you can only feel that it isn’t going to get better without a radical cultural change toward what the NHS is supposed to provide, regardless of how much money is thrown at it. How long will “cultural change” take? Two or three decades, maybe, if we start today. In the meantime, if you can, perhaps you better start putting some money aside to look after yourself for the times when the NHS can’t or wont.

“Old age is not for wimps”, someone once said, and the scary thing is that for the many of us who see it, that could be an understatement. Maybe I’m being negative, but of course, pondering my doddering old age in the future doesn’t get me down – as it’s simply not going to happen to me, is it? I’m going to be that sky-diving, bungee-jumping pensioner you read about who’s about to head off to trek across the Andes. As are you.

But what’s the contingency, and who’s going to look after us,  if we’re not?

Going, going….


A podcast from the Mad Fientist about a Safe Withdrawal Rate got me thinking this week. Not so much about the maths behind it, or whether it is likely to work or not for me over the next thirty years, but thinking more about me over those thirty years instead.

You can’t take it with you, and as I head toward turning fifty four this year I increasingly wonder about how I will fare over the next thirty years? Because, in all probability, that’s about what I have left on this mortal coil.

We don’t do death very well in the Western world, so it’s quite difficult to focus on your own demise. Actually, I’ve read that it’s virtually impossible to imagine your own death in any meaningful way. Your mind can’t grasp it, and in a way the “4% rule” is a good example of this. If I read it right, and to make the maths simple, let’s say you have a million quid in a pension pot. If I withdraw £40k a year from that pot then, thirty years down the line, that million quid (allowing for inflation) will still be sitting there, pretty much untouched. It might even have grown. It might have dwindled slightly. Who knows for sure? But what I do know is that I doubt I’d have much need of a million quid at that age!

My feelings about this intensified at the end of the podcast where the interviewee, Michael Kitces, talks about “Lifestyle Creep” and lifestyle in general. He argues quite forcefully that you shouldn’t sweat the small stuff and, if you have your financial priorities right, then you’ve no need to worry about buying that Starbucks Mucho Latte or Big Mac (Large) for lunch, if that’s what you want. That sort of purchase just doesn’t matter in comparison to maxing out your mortgage with the first property you buy and then servicing the debt from your twenties onward. If you do that then you might not be able to afford a McDonalds for lunch in future.

Meanwhile, once you start living in a bigger house, buying a new car every three years, taking two or more holidays, hiring help for the gardening or cleaning and so on, it becomes very, very difficult to subsequently give those things up.

I can affirm the reality of this. Dispassionately I know I should downsize my property at some point for a multitude of good and financially advantageous reasons but, you know, I like the house I have, with spare rooms for guests or just to lounge around in. I like the garden, the spacious garage, the shed, the location and so on. Could I easily give them up? (Emphasis on the “easily”.)

The same could be said for cars. In my career, I’ve always had company cars that changed every two or three years. I’d really like to continue on with that, but does that really make sense? Financially, buying a new car every three years is jaw-droppingly dumb, but emotionally?

None of this internal debate matters if you’re loaded and are swimming in money through retirement, but it’s not hazarding a guess to think that most people will not be in that situation. If you ask me, it’s the middle classes that will be in for potentially the biggest shock. Talking to friends who work as pension advisors a 30k a year income is a desirable retirement income for many couples. This sits, however, very uneasily with the most popular middle class goal of retiring at 55. If I am calculating it correctly, and not allowing for any nifty tax manipulation, you’d need a £750k pot for that income on the 4% rule.

The Safe Withdrawal Rate is therefore quite a hard task master, especially if the point of it is to protect your capital and income generation.  But surely you have to ask yourself, as you head into your dotage, how much do you need?

For me, looking at retirement, this is one of the biggest puzzles I have – how much am I going to need to service my definition of “a comfortable retirement”? When I had my year out, I was quite amazed by how little I spent on a week to week basis versus what I used to spend when I was working. I feel that would almost certainly continue as I head into my sixties and beyond. I’m just not going to need as much money in my sixties as I did in my fifties, and I think that same rule will apply even more to my seventies and eighties (if I get there!) As each year goes by, the chances are that my annual budget will be shrinking.

(There’s a potentially big caveat here when it comes to health, because who knows how much you want to spend on that as you grow older?)

Assuming I stay relatively healthy though, the 4% rule seems either to assume that you’re going to live forever or that one of your goals in life is actually a goal for death, through leaving an inheritance. I can see the sense in it for early retirement, but traditional retirement at 65? Not so much