Where in the world to invest

[jacko 8,695]

how well off are you? if you don't need the interest then how about premium bonds? 100% safe and possibility of a good win.good place to store your cash for a while to see which way the wind blows.

Limited to 30K, current interest rate 1%. Chances per £1, 1 in 36,000.

If you are a UK taxpayer,

http://www.moneysavingexpert.com/savings/s...-interest#fixed

[utip 0]

Hi Robin just checking on my previous post and saw yours. I am only commenting because I want to put off doing my taxes and this sounded more fun. I know I am completely lame. Anyways here it is and its not an attack so I hope it doesn't come off like one.

 

Not sure what you mean by premium bonds Robin. Usually it would mean a bond bought at more than its face value because it has a high coupon relative to current interest rates. But I don't think that's what your saying. Based on your comment about safety I am guessing you might mean a govt. bond? Or based on your comment about not needing interest I though maybe you were talking about zero coupon bonds which only give you one payment when the bond matures. Then again maybe I know fuck all and premium bond means something completly different wherever you are from. Anyways principle might be safe if you hold govt. bonds to maturity (depending on what govt. you are talking about) but think what future interest rates are likely to do. They got no place to go but up. That means the market value of your bonds will be shite in the future. Zero coupon bonds are even more sensitive to fluctuations in interest. Also govt. bonds at todays interest rates are not likely to keep up with future inflation and future inflation looks bad with injection of so much newly printed money into the system. Hmmm wonder if there is a big market for a financial planner among the expat community in Thailand. Maybe someone for which english is there first language and comes from a western country and can relate to other expats. Maybe I didn't waste my time with this post after all.

 

Anyways good luck to you M62 and to you too Robin.

[jacko 8,695]

Hi Robin just checking on my previous post and saw yours. I am only commenting because I want to put off doing my taxes and this sounded more fun. I know I am completely lame. Anyways here it is and its not an attack so I hope it doesn't come off like one.

 

Not sure what you mean by premium bonds Robin. Usually it would mean a bond bought at more than its face value because it has a high coupon relative to current interest rates. But I don't think that's what your saying. Based on your comment about safety I am guessing you might mean a govt. bond? Or based on your comment about not needing interest I though maybe you were talking about zero coupon bonds which only give you one payment when the bond matures. Then again maybe I know fuck all and premium bond means something completly different wherever you are from. Anyways principle might be safe if you hold govt. bonds to maturity (depending on what govt. you are talking about) but think what future interest rates are likely to do. They got no place to go but up. That means the market value of your bonds will be shite in the future. Zero coupon bonds are even more sensitive to fluctuations in interest. Also govt. bonds at todays interest rates are not likely to keep up with future inflation and future inflation looks bad with injection of so much newly printed money into the system. Hmmm wonder if there is a big market for a financial planner among the expat community in Thailand. Maybe someone for which english is there first language and comes from a western country and can relate to other expats. Maybe I didn't waste my time with this post after all.

 

Anyways good luck to you M62 and to you too Robin.

No, you are correct that you know sweet FA about premium bonds and prefer to go on about things in the USA. They are a specific item offered by the UK treasury, bought for £1 each, up to £30k. The interest (1%) goes into a prize fund whereby bond numbers are selected at random and you can win a monetary prize, like a lottery. The bond always retains its £1 value and is entered for the draw each month.

[utip 0]

Well it isn't the first time I have been wrong, but everything I have said does not just appply to U.S. It holds anywhere except for the part about govt. bonds being safe. That obviously doesn't hold everywhere.

[RobinBay 0]

Didn't know about the 30k limit on the bonds.

Everything depends on individual situations,me personally i only have 130k which is a decent amount but no where near enough to retire on.I'd want 250k min at 6% to have enough to retire,i think that day is a long way away and getiing further away.

Good luck on your plan mate.

[utip 0]

Checked out those bonds after Jacko corrected me. Expected return is only about 3.5%. The real return after inflation obviously would be very low. Depending on M62's age I am sure he could get an annuity that pays about 6%.

[MrMango 661]

Checked out those bonds after Jacko corrected me. Expected return is only about 3.5%. The real return after inflation obviously would be very low. Depending on M62's age I am sure he could get an annuity that pays about 6%.

Surly you jest - The companies that issue the annuity's are the same companies that are under water!

 

Who in their right mind would give a large chunk of cash to a dodgy company that promises to pay them so much a month in 20 years??

 

Stupid...

[utip 0]

Solvency is a legitmate concern but can be solved as you can spread the purchase across companies. This has a cost though as it will lower your return somewhat. Most insurers have reinsurance and spread their risk effectively though so I wouldn't be too concerned with picking an individual company. Also while some insurance companies have had problems recently they met their obligations (along with the help of the U.S. taxpayers). If you don't have any bequest motives annuities are actually the most rational choice to fund retirement. There is a lot of price variation though so it pays to shop around. Of course if handing over a large lump sum of money it has taken your whole life to accumulate to an insurance company will keep you up at night then don't do it.

[midlifecrisis 4,012]

Where should one put one's money for safety?

 

These are bad times. They are times that somewhat probably render all of our experience nearly worthless.

 

1) "Things will get better. They always have after a bad time in the past."

 

2) "It's different this time. There are things happening that have never happened before."

 

 

True believers of 1) will pull out pages of historical graphs showing squiggly lines and how today matches them and they are therefore predictive. They will say that in ALL panics governments have stepped up and broken rules and broken laws and done whatever they could, regardless of who got hurt, in order to save the system.

 

True believers of 2) will push those graphs into the trash can and talk about how the planet's population has never before been this large and it has outstripped resources of all kinds -- not "merely" oil. They will also say that countries have never been like this before, with non native immigration that changes the nature of each country's populace.

 

Here's the really bad news: The truth is NOT somewhere in the middle. The truth is going to be one of those 2 items.

 

So, if you think everything will eventually right itself, then the sophisticated UK board members here who can tell you how to park your money in pounds sterling (or whatever) and the isle of this or isle of that banks are the guys to chat with. The pound and the USD will reassert their places at the top of the food chain.

 

If you think that a world without oil looks like the year 1890, but with net access and cable TV, then you have different thinking to do. Arab banks are NOT the answer, because if oil is running out, so is their cash influx. More likely the countries who have learned how to be neutral in all matters (Switzerland) may be a nice safe place to park.

Would you care to tell us oh Owen oracle which side you are betting on?

 

[Owen` 2]

If you don't have any bequest motives annuities are actually the most rational choice to fund retirement.

 

I disagree. Annuities are a hugely profitable product sold by insurers.

 

Think Very Carefully About That Sentence. Anything hugely profitable for whomever is selling it to you is pricing it far more than its . . . let's grab the adjective "intrinsic" (and not define it) value to you. In other words, you are getting screwed.

 

Reality is that insurance companies are not doing anything with your annuity money that you could not do yourself. They are just paying themselves a hefty profit as an additional cost to you in performing the same portfolio management you could perform in your own accounts. It's not rocket science, either. 50/50 stocks to bonds ratio. Or whatever other ratio you want. Hell, you can probably call the insurance company and ask them what ratio they have picked and they'll tell you.

 

Oh wait, that guarantee? They guarantee your money? They insure themselves with someone else? Well, yes they do. We learned in the last few months that they use the US government as their insurer of last resort. Well, you can, too. You can buy treasuries for your bond holdings and you can buy insurance company stocks for your stock holdings. The government thereby insures you if it insures them. (If it doesn't insure them and kills you, then all those annuity holders are also dead (though some states do have insurance pools to spread risk (which you can do yourself and not pay that huge profit)).

 

Would you care to tell us oh Owen oracle which side you are betting on?

 

 

I am no Oracle. I am a guy posting on an internet board. I'm nobody. I type mostly to kill time and to keep guys out of trouble. I have tried really hard over the years to recommend to the guys on this and the Secrets board that they buy . . . nothing specific. As much as I would hate being wrong for myself, I'd hate it even more if guys went and bought something I pimped and got smashed because of it. So I try not to recommend anything.

 

For this particular question . . . is it different this time or will the world return to what it was . . .

let me offer thoughts.

 

Was it "different this time" in 1929? Was it different this time in 1990 Japan? Answer: Yes. It very very likely is different every time. Anyone who has been paying attention the last few weeks has watched as US banks report results and those reports are horrific lies, filled with obfuscation and exercising of latitude within brand new accounting rules. Goldman Sachs reported quarterly earnings that traversed four months, not three. They essentially excluded December's numbers. They did this by changing their fiscal calendar year. It is an obvious scam. But the world is terrified, the market is rising and no way in hell they will be prosecuted for it.

 

The thing is . . . this is not different. Each time the world looked like it was about to end in the past, governments changed rules to enable things to look better. Governments will do anything to keep rioters out of the street. Herbert Hoover announced "glimmerings of hope" and there was talk of green shoots in 1930. Hoover's administration did not stand pat and do nothing. Desperate measures were taken by Hoover, and then by Roosevelt subsequently and all those measures by both presidents failed.

 

I suppose my point here is the end of the world scenario doesn't require it being "different this time." The world ended in 1929. It ended again in the early 1970's. In Japan, it ended in 1990. A young man entering his career in 1990 Japan is now 42 yrs old and he has seen only real losses in his savings. For 20 years. That's a true disaster. What was he saving for these 20 years? To fund losses?

 

The opposing perspective is that the markets were down 55% from Oct 12, 2007 and the recent surge of 25% has cut that to -45%. The whole world has created money to pump into industries and all that stimulus is in the pipeline worldwide. When it arrives at its destination, there will be a major increase in growth. Yes, it is money created from thin air, but that suggests an inflation explosion and it's very hard to increase prices on anything when there is no demand for it. When the demand appears, the central banks can ramp up rates rapidly and choke inflation before it is a risk.

[js007 795]

I've never thought seriously about buying an annuity, but don't they have some sort of tax advantage, being an insurance product? Or am I thinking about some other type of policy?

 

But other than the tax advantage, then yes, the insurance companies are screwing people, more likely than not.

 

J

[midlifecrisis 4,012]

I've never thought seriously about buying an annuity, but don't they have some sort of tax advantage, being an insurance product? Or am I thinking about some other type of policy?

 

But other than the tax advantage, then yes, the insurance companies are screwing people, more likely than not.

 

J

the good thing about annuities in California is that they must be backed by 100 percent of the assets (according to my financial planner). But from what Owen is saying is that true?

 

AIG, for instance, that part of their business (according to my financial planner) is sound.

 

You may be able to keep up with inflation with annuities but there is no growth.

 

My IRA company (Fidelity) just sent me an advertisement for a 5 year fixed annuity at only 3.12%

 

Here are what they say are the benefits:

 

Guaranteed rate of return from 3 to 10 years

Principle preservation

Tax deferral

Rollover opportunity of IRA or 401K assets

 

It doesn't seem like much but CD rates are so low that it isn't any better than having a savings account

 

Talk to insurance companies if interested.

 

My divorce attorney told me never to do one. By Owen's explanation I understand more about it.

Edited April 20, 2009 by midlifecrisis

[jacko 8,695]

I am no Oracle. I am a guy posting on an internet board. I'm nobody. I type mostly to kill time and to keep guys out of trouble.

But you do talk a lot of independent minded sense.

Listening to someone recently, a point was made......

There are a few indicators that will cause further downturn in the world economy, one of which is the

lack of support offered by institutions for accountability.

I feel this is pertinent, with all this easy money floating about, will it be a question of 'well that's over and done with, where were we?'........here we go again?

[js007 795]

the good thing about annuities in California is that they must be backed by 100 percent of the assets (according to my financial planner). But from what Owen is saying is that true?

 

AIG, for instance, that part of their business (according to my financial planner) is sound.

 

You may be able to keep up with inflation with annuities but there is no growth.

 

My IRA company (Fidelity) just sent me an advertisement for a 5 year fixed annuity at only 3.12%

 

Here are what they say are the benefits:

 

Guaranteed rate of return from 3 to 10 years

Principle preservation

Tax deferral

Rollover opportunity of IRA or 401K assets

 

It doesn't seem like much but CD rates are so low that it isn't any better than having a savings account

 

Talk to insurance companies if interested.

 

My divorce attorney told me never to do one. By Owen's explanation I understand more about it.

 

From what I understand, when you buy an annuity you're gambling with the insurance company as to your life expectancy. They look at your age and their actuarial tables. They then sell you a product to pay out over a specified term or for your life, at a specified interest rate. They then go into the market to purchase securities that will fund the payout and give them a profit. You get a tax break and they make money, usually.

 

Are you feeling lucky?

 

J

[utip 0]

I disagree. Annuities are a hugely profitable product sold by insurers.

 

Think Very Carefully About That Sentence. Anything hugely profitable for whomever is selling it to you is pricing it far more than its . . . let's grab the adjective "intrinsic" (and not define it) value to you. In other words, you are getting screwed.

 

Reality is that insurance companies are not doing anything with your annuity money that you could not do yourself. They are just paying themselves a hefty profit as an additional cost to you in performing the same portfolio management you could perform in your own accounts. It's not rocket science, either. 50/50 stocks to bonds ratio. Or whatever other ratio you want. Hell, you can probably call the insurance company and ask them what ratio they have picked and they'll tell you.

 

Some good points I do not disagree that annuities are very profitable and many are very uncompetitive due to their complexity and the fact that it is difficult to determine the costs associated with annuity. I would not reccomend annuities for anyone who is young as the costs will strip away any benefits that the annuitie's mortality credits would provide(more on these in a second). They do however do something most investors do not do own their own and that is pool the savings of several individuals to provide lifetime income to everyone in that group with the reallocation of the contributions from those who die going to those who survive (mortality credits). These mortality credits along with the insurance companies ability to invest this money allow someone purchasing a lump sum immediate annuity to recieve a higher lifetime income stream than using a sustainable withdrawl rate from an investment account even after the annuity costs. They also alleviate the problem of running out of money too soon or not spending enough. Obviously if you want to leave money to family, charity, your favorite bar girl, or will have large out of pocket medical expenses you would need to take another route or set aside money outside of an annuity.

 

If absolutely opposed to annuities then a total stock market index fund, a short term bond fund, and a money market fund or a bank account is where I would reccomend putting money. That is a combination of all three of those. M62 sounded like he just wants to park his money in a bank but I wouldn't recommend it unless he plans on having a very short retirement.

 

Oh yeah and Owen I agree with your assesment of future inflation which is why I wouldn't just park all my money in the bank.

 

Anyways its been fun. Feel freee to destroy my post.

Edited April 20, 2009 by utip

[Owen` 2]

They do however do something most investors do not do own their own and that is pool the savings of several individuals to provide lifetime income to everyone in that group with the reallocation of the contributions from those who die going to those who survive (mortality credits). These mortality credits along with the insurance companies ability to invest this money allow someone purchasing a lump sum immediate annuity to recieve a higher lifetime income stream than using a sustainable withdrawl rate from an investment account even after the annuity costs. They also alleviate the problem of running out of money too soon or not spending enough. Obviously if you want to leave money to family, charity, your favorite bar girl, or will have large out of pocket medical expenses you would need to take another route or set aside money outside of an annuity.

 

. . . feel free to destroy my post . . . .

 

No reason to destroy your post. You have offered superb input for this topic and it's a topic that can be valuable for the guys on this board.

 

I try to keep in mind on this board that there are many UK folks reading, so this topic can be examined in a non-US centric way. I also think in terms of many BMs having spent their lives supporting a family by welding or doing machine tooling or other blue collar work that did not require them to do sums in their brains every day. They could be reading this. These guys didn't sit on their asses on the dole their whole lives. They went out and worked. There's no reason they should not have a chance at a retirement.

 

So here's the thing, broadly. It's not good news. A huge proportion of BMs would like desperately to find a way to put their money somewhere, get a good return that will fund their TGs and themselves for the rest of their lives and not have to ever look at that money or worry about it. They would love a hands-off vehicle that is lucrative forever on autopilot.

 

It doesn't exist. It never has. It never will. Annuity salesmen will sell their product with that teaser, but it's a lie.

 

For the ex-welders reading . . . an annuity is sold and described and has to some extent the nature of a pension. In effect, you buy your pension. You hand YYYYYYY dollars of money to the annuity company and they promise to pay you XXXX pounds sterling or dollars per month for the rest of your life. The amount of XXXX depends on how much YYYYYYY you give them. That's how they compute their scam. XXXX vs YYYYYYY will derive from market rates as they are, predicted market rates as the annuity company predicts them, inflation as the annuity company predicts it, and your life expectancy as the annuity company predicts it. They pay you for the rest of your life. If you die early, they keep what's "remaining". If you die late, they lose money (which they take from those guys that died early and lose nothing on balance). So it's one of very few places in society that if you tell them you're a smoker, you get more money paid out.

 

You can also get XXXX pounds or dollars per month indexed to inflation by adjusting severely how much YYYYYYYY you give them up front. This is another maneuver available to them to increase their own profit (and bonuses).

 

utip above correctly points out that the pooling of all the annuity buyers enables them to pay the guys who die late. The later mortals don't "run out of money". The annuity company covers the ongoing payments with the money left over from those who died early. That's the basis of the whole scheme.

 

The risk? The company uses a prediction of market rates and inflation rates for computing payouts (and their own profits). If they are wrong, they go bankrupt. If they go bankrupt, technically they take your money with them and it's gone. In practice there is risk management by that company having what we'll call bankruptcy insurance or better yet . . . the US or UK governments willing to step in and cover losses. But . . . . sometimes, that loss coverage is not total. In the US (and probably in the UK) there are annuity protection laws that step in and take over in such a situation -- but they don't cover your monthly payment 100%, and if you had inflation protection it will be gone.

 

Also from utip:

>> These mortality credits along with the insurance companies ability to invest this money allow someone purchasing a lump sum immediate annuity to recieve a higher lifetime income stream than using a sustainable withdrawl rate from an investment account even after the annuity costs. >>

 

I disagree. The definition of sustainable withdrawl rate (the magical 4% number) has average life expectancy built into it for a 30 year withdrawl period at 95% confidence. Lumping of early death and late death guys together doesn't affect how much that company can pay in an annuity. Early and late death factors balance. The annuity company can increase their payout with a simple wave of the hand at their internal predicted market rate numbers. If they increase those, they can say they can pay out more. Or the markets of today could have an uptick and provide them illusory mathematical justification to do the same thing (and presumably grab customers from their competitors).

 

The basic point is they do nothing you can't do yourself, and they pay themselves an enormous amount of profit in their XXXXX to YYYYYYYYY ratio. Every penny of that comes off your XXXXXX. If you do it yourself, you keep that profit -- or your heirs do. utip suggested the mechanism for "doing it yourself". Mix together short term bonds, total stock market index funds (what's the UK equivalent name?) and money market funds.

 

And hope the world doesn't end. Because . . . guys . . . if the world unravels, it will be very hard to find a place to hide. Gilts, US Treasuries . . . shrug. The worst case scenario is guns and farmland as the only assets of value. Let's hope we don't get to that stage.

Edited April 20, 2009 by Owen`

[Obsession 571]

Usual quality posts from Owen Hes been explaining things in a clear and concise way for years now and I hope he continues.

 

I dont understand how some people are so willing to give their money to someone else to look after it. Maybe its something to do with being from the UK. I realised that any pensions contributions etc would be in the hands of some hooray henry upper class twit. The companies offices would have to be paid for and every hooray henrys expence account and Porche. Children and cash - safer in your own hands.

[Daveuk 28]

Looking for a safe haven for your money ? All the major currencies seem to have problems US dollar, Euro, £ sterling, Swiss Franc I can think of many reasons not to invest in them !.

What about depositing money in Norway ? Small sensible law-abiding population, a LOT OF OIL, thei own currency(Krona) and determined to stay out of the EC. Sounds good to me - I'm off to Oslo.

[Tel 0]

Let me add my 3 pence - as we used to say in the UK. Now it should be 3 ponuds.

 

If you change your currency from UK pounds to another currency now, you are going to get todays bad exchange rate. So I would not look to move out of UK pound until it recovers some of its old value. It may not reach 2 dollars to the pound but it should recover some.

 

Where to be safe. You are guaranteed 50,000 UK pounds per person per bank. So if you stay in UK pounds, split it across as many banks as you need to.

 

To get a good return. As has been said before the higher the return, the higher the risk. When I retired and moved to Thailand I got out of shares and put the money in banks to get the interest. I wanted to play safe. I still have all my money, but have a poor interest. But if I was in shares I would have lost a lot.

So I am happy on what I did and am hoping the interest rates rise.

 

At this time I do believe there is any way you can have a win win situation. You can have safe and low earnings OR risky and better earnings.

[rogero 4]

Hi all

 

Fascinating reading this thread. I will reread tomorrow when I'm less tired & emotional.

Also appreciate the international viewpoints & valid statements from so many obviously fiscal competent BMs.

 

I'm UK based (NI) & when interest rates collapsed I put a few grand into premium bonds (as much as a gamble, as it was pointless investing to get 1.5%.

The next day Martin Lewis (@ moneysavingexpert.com) already linked earlier ) said it was the poorest form of investment around.

I don't care, I like a thrill if there isn't any thing else around.

 

I also put some loot into a UK ISA linked to the FT index (@4000) as the FT index cannot go lower.

 

anyway enjoying the comments

 

roger

[m62man 0]

My Accountant takes the same view as Owen and is dead set against buying annuities.

My Financial Adviser (Insurance Broker) advises that in my circumstances (having no need to preserve funds for next of kin or dependants) they are a good idea and offer a good rate of return compared to DIY investment by me, bearing in mind that I don't have any expertise.

My Accountant has no financial interest in what I do with my money and is a personal friend of many years. My Financial Adviser will earn commission if I put money into an Annuity.

I can take only 25% of my Pension Fund in cash and must invest the rest in an Annuity at some time. There is no other alternative in the UK.

I have discussed Annuity Rates with various people and everyone I have spoken to says that they are expected to fall over the next few years. Of course, nobody knows for certain.

At the moment I can get a return of 6.85% with a smokers annuity having no index linking or balance to leave to dependants.

I have decided to take the cash that I can take out of my pension fund and buy an Annuity now with whats left. This gives me an income of just over £7000.00 p.a.

I have bought £25,000.00 of Premium Bonds on the basis that I could always get lucky and win £1,000,000.00.

The other money I have left will be invested in 2 blocks of £50,000.00 in different Building Societies, so that I am covered by the Governments' guarantee scheme. I haven't yet decided which ones or what type of investment to make, but I think I can get about 3 or 4 %.

£7,000.00 p.a isn't enough to live on, so I will have to dip into capital to live.

I am 58 now, so if I take £10,000.00 a year out, I can last until I am 68.I should be able to live quite well on £17,000.00 p.a.

I still have my house, which, although I probably can't sell it at the moment, is worth over £350,000.00. Even if I could sell it now, I wouldn't know where to invest the money, and I feel money in property is as safe a place as any at the moment.

I will review the situation in a couple of years time, when I see how much I am spending and in the meantime will try not to worry too much and enjoy my retirement, which is scheduled for 1st July.

[Bazle 1,415]

I can take only 25% of my Pension Fund in cash and must invest the rest in an Annuity at some time. There is no other alternative in the UK.

Ask your accountant friend about "income drawdown".

 

This thread has been an interesting read. We are all in slightly different circumstances. My variant is that my employer's (crap!) final salary pension scheme is hugely underfunded and I'm concerned my employer is going to go bust. I've decided to draw my pension even though I will remain in employment just to make sure I get some money out while I can - but, obviously, the pension is less than if I had waited.

[Bazle 1,415]

Sorry - duplicate post. (The result of rubbish "mobile broadband"!)

Edited May 3, 2009 by Bazle

[utip 0]

My Accountant takes the same view as Owen and is dead set against buying annuities.

My Financial Adviser (Insurance Broker) advises that in my circumstances (having no need to preserve funds for next of kin or dependants) they are a good idea and offer a good rate of return compared to DIY investment by me, bearing in mind that I don't have any expertise.

My Accountant has no financial interest in what I do with my money and is a personal friend of many years. My Financial Adviser will earn commission if I put money into an Annuity.

I can take only 25% of my Pension Fund in cash and must invest the rest in an Annuity at some time. There is no other alternative in the UK.

I have discussed Annuity Rates with various people and everyone I have spoken to says that they are expected to fall over the next few years. Of course, nobody knows for certain.

At the moment I can get a return of 6.85% with a smokers annuity having no index linking or balance to leave to dependants.

I have decided to take the cash that I can take out of my pension fund and buy an Annuity now with whats left. This gives me an income of just over £7000.00 p.a.

I have bought £25,000.00 of Premium Bonds on the basis that I could always get lucky and win £1,000,000.00.

The other money I have left will be invested in 2 blocks of £50,000.00 in different Building Societies, so that I am covered by the Governments' guarantee scheme. I haven't yet decided which ones or what type of investment to make, but I think I can get about 3 or 4 %.

£7,000.00 p.a isn't enough to live on, so I will have to dip into capital to live.

I am 58 now, so if I take £10,000.00 a year out, I can last until I am 68.I should be able to live quite well on £17,000.00 p.a.

I still have my house, which, although I probably can't sell it at the moment, is worth over £350,000.00. Even if I could sell it now, I wouldn't know where to invest the money, and I feel money in property is as safe a place as any at the moment.

I will review the situation in a couple of years time, when I see how much I am spending and in the meantime will try not to worry too much and enjoy my retirement, which is scheduled for 1st July.

Hey M62 glad to see an update from you. Even though I recommended the annuity I will be honest and say that your insurance agent has a big incentive to tell you that it is great. I do think it is a good way to go but it is important to shop around. Also do some legwork first and research them yourselves so you understand them and their expenses as best as possible. There are a lot of uncompetitive annuity products out there and annuity fee structures are not very transparent. Having said that, even an annuity with high fees is likely to give you a higher income than a relatively safe sustainable withdrawl rate (3 or 4%) from an investment account. Make sure you tell your annuity company that you drive a moto bike in Pattaya and have unprotected sex with 2-3 bar girls a day in addition to smoking. Oh yeah and don't forget the excessive drinking! Annuities are the only time you get rewarded for bad behavior .

 

By the way I would not recommend an insurance broker as a financial planner if in fact his primary business is insurance. If you want more advice look for someome with a CFP designation. Of course as many of them charge for assets under management they will have an incentive to not recommend annuities. Man this business is dicey.

 

Best of luck to you M62. Wish you a long and happy retirement.

[Owen` 2]

I will have to apologize to the UK BMs here. I was vaguely aware that there was a requirement that they buy annuities in some time window, but it slipped my mind and I spent all my time trashing the concept in general -- which derived from the US centric perspective.

 

Let me grab out quotes from the comments above:

 

Having said that, even an annuity with high fees is likely to give you a higher income than a relatively safe sustainable withdrawl rate (3 or 4%) from an investment account.

 

That's from utip and I'm not going to say I disagree, but let's examine it closely.

 

I am 58 now, so if I take £10,000.00 a year out, I can last until I am 68.

 

We're talking about M62's situation which can be summed up as age 58 and smokes like a chimney. No offense. :)

 

Here's the thing. The magical 4% derives from history (which, in the end of the world scenario that is unfolding may NOT be particularly informative about the future) and it gets you 30 years of inflation adjusted money. An annuity is not going to outperform that if all the parameters are fairly compared. If you have been quoted 6+%, it's because . . . as you said . . . there's no indexing and they expect you to croak at 68. Inflation will affect it. The magic 4% number extracted from your lump sum if you DIY is indeed inflation adjusted and if you don't ask 30 years of it, you can get it up to 6 and 7 and 8% withdrawls from that approach. If you are going to croak in 10 years, clearly you can take about 10% out a year if there are no fees (see how they got down to 6% offered to you? Guess whose pocket the difference between 10% and 6% is going in? Right, Mr. Posh Insurance Executive's).

 

But there I go again. This point is moot. You're required to buy a UK gov't approved annuity.

 

So let's have a look at some math. Let's say you beat the smokers' odds and last to 78. This is not laughable and I hope you do, sir, and let's give medical science a nod that they may have a cure by the time you need it.

 

But anyway, that's 20 years. Let's also assume your Gordon Brown is a genius and all the extra money getting printed around the world (and London) doesn't translate into anything more than 5% inflation per year. Here's how you crunch that number. 1.05 ^ 20. Simply that. 5% compounded 20 years will render your 7000 pounds per annum to be 7000/2.6 = 2638 pounds in 2009 pounds equivalents that you'll be funding life with at age 78.

 

That isn't good. Don't be deluded by the bigger number on the annuity that is not inflation indexed. Inflation is lethal in a world running out of oil.

 

I still have my house, which, although I probably can't sell it at the moment, is worth over £350,000.00.

 

I refuse to try anymore to persuade you Brits about your damn houses. You guys will cling to those things and try to get them buried with you. If you can't sell it at the moment, it's worth ZERO. Repeat, something that you CANNOT SELL is worth ZERO. Now, I know you meant that you would have to reduce the price to sell it. Well, there we have it sports fans, it's worth whatever price you have to reduce it to for sale. Done.

 

Oh, and put me in the utip column of encouraging you to tell them you are are a race car driver that smokes and skydives 3X a week while taking insulin for diabetes and reporting for the BBC from the Gaza Strip.

 

Good luck, guy.

Edited May 4, 2009 by Owen`