A terrible article on retirement saving form the UK

[nun]

I recently read this article in the Guardian about UK retirement saving and income. It gives a few figures that seem pretty ridiculous to me and the projections don't follow any of the standard dogma.

https://www.theguardian.com/money/b...week-retirement-which-report#comment-97232212

First, don’t underestimate the value of the new state pension. It’s now £159.55 a week, so for a couple that’s £16,593 a year. Therefore they need around £10,000 a year more to fund a decent retirement. But we shouldn’t forget tax: a couple aiming for £26,000 a year need £26,750 gross, while the “luxury” £39,000 income needs to be £43,000 before tax.

The next step is to start saving now to build up enough money at retirement to bridge the gap between the state pension and the £26,750 needed. Which? says that for a couple of 40-year-olds, the sum needed is £338 a month. That sounds like a huge amount for any hard-pressed family, but look at it this way: £338 a month is £169 a month each, or just £39 per week.

That should be enough for a couple to build up a pot worth £210,000 by 67, which should be enough to draw down an income of £10,000 a year for the rest of their lives.

It's safe to say that the state of UK retirement planning is truly awful....inflation seems to have been ignored and the SWR is set at 4.7%. I give the studies and the article an F. What do you think?

 

[LOL!]

"£338 a month is £169 a month each, or just £39 per week [each]."

Sounds good to me. I know you have UK roots, so you must know that things can be pretty cheap in the UK. For instance, health care is something that retirees probably don't spend a lot of money on. And the spending amount for retirees is from surveys, so it must be correct, right?

So $500 a month for 25 years is decent and it only has to last say 15 years on average.

 

[splitwdw]

It sure doesn't sound like it's that cheap to live in the UK. I was reading through some of the comments (I usually don't read the comment section of anything because it's where the crazies post) and it sounds like housing is very expensive. Quite a few people that commented, talk as if a minimum wage job is what everyone has. Wonder what group of people and what area this newspaper caters to. I thought that they had government medical coverage but 1 or 2 comments said what if you had a serious condition that needed extra care. Is a cup of coffee that expensive in UK?

 

[Totoro]

"The UK" as such doesn't exist from a cost of living perspective.

London is up there as most expensive, Liverpool ... not so much. GDP per capita 160k vs. 32k USD, just to put a number on it.

With a paid off house and a low key lifestyle one doesn't need much. Especially since healthcare doesn't need to be budgeted for as in the US.

 

[nun]

The problem I have is with the basic assumptions in the article. The income required in 27 years time is not inflated and even then withdrawal rate is 4.7%.....there have been studies that in the UK that suggest 3.38% is a safe withdrawal rate and the UK also has some pretty high pension/investments fees. Maybe the projections are for a retirement up to the average life expectancy, but that's a very risky thing as half the people will run out of money.

 

[cooch96]

If you wait until 67, like the excerpt suggested, then a 4.7% withdrawal rate should last into your 90's. Seems pretty safe to me.

 

[Surewhitey]

If you wait until 67, like the excerpt suggested, then a 4.7% withdrawal rate should last into your 90's. Seems pretty safe to me.

+1

They didn't imply early retirement, right?

 

[nun]

If you wait until 67, like the excerpt suggested, then a 4.7% withdrawal rate should last into your 90's. Seems pretty safe to me.

Official UK government figures give the life expectancy of a 67 year old female as 89 years and there's a 10% chance of living to 100...so that's one reason why I say a 4.7% withdrawal rate is a bad idea. Also remember that the standard 30 year safe withdrawal rate in the UK is not 4%, but 3.38% and the fees associated with retirement savings are usually higher than in the US.

 

[Fedup]

"The UK" as such doesn't exist from a cost of living perspective.

London is up there as most expensive, Liverpool ... not so much. GDP per capita 160k vs. 32k USD, just to put a number on it.

With a paid off house and a low key lifestyle one doesn't need much. Especially since healthcare doesn't need to be budgeted for as in the US.

Not necessarily true. My SIL has her house paid off, she still works one day at minimum wage, she has not bought any new clothes since she divorced from her husband, almost 12 years ago. Always seem to be needing money somehow. At her age, 67, she only gets GBP 400 per month with free or almost free bus service. But very very spartan life. She wants to travel more but doesn't have any money.
I have no idea why the GDP is so high. But there didn't seem to have a lot of jobs. I mean high paying jobs.

 

[Fedup]

Official UK government figures give the life expectancy of a 67 year old female as 89 years and there's a 10% chance of living to 100...so that's one reason why I say a 4.7% withdrawal rate is a bad idea. Also remember that the standard 30 year safe withdrawal rate in the UK is not 4%, but 3.38% and the fees associated with retirement savings are usually higher than in the US.

For some reasons, UK requires advisors. My husband's friend said he can't self manage his investment somehow.

 

[Alan]

For some reasons, UK requires advisors. My husband's friend said he can't self manage his investment somehow.

Sources? You may be correct but I've never heard of that. Possibly you are talking about the recent rules where traditional DB pensions must allow a 25% tax free lump sum. I heard that a lot of folks speak to an advisor for free, as required, before withdrawing the lump sum but then they are on their own, very few retain an advisor.

My wife's brother has managed his own investments, including a SIPP (401k equivalent) for decades, and I'm certain he doesn't have an advisor, nor does my BIL's mother as I know that he advises her on her retirement accounts.

 

[Fedup]

Sources? You may be correct but I've never heard of that. Possibly you are talking about the recent rules where traditional DB pensions must allow a 25% tax free lump sum. I heard that a lot of folks speak to an advisor for free, as required, before withdrawing the lump sum but then they are on their own, very few retain an advisor.

My wife's brother has managed his own investments, including a SIPP (401k equivalent) for decades, and I'm certain he doesn't have an advisor, nor does my BIL's mother as I know that he advises her on her retirement accounts.

Source is my husband's friend. We refer him to Vanguard and even then he said his pension requires him to use an advisor. This is the guy who pinches pennies and ate 4-year old out of date picked onions. In other words if he didn't have to pay any fee, he wouldn't.
Now that you mention it, I will have to ask him next. Honestly, I have no beef in this fight. I thought it works the same as in USA. But I've found out a lot of things in UK don't work as I imagine in USA.
I found this link, where it states you must get financial advice by law.
https://www.pensionwise.gov.uk/financial-advice

 

[Alan]

"The UK" as such doesn't exist from a cost of living perspective.

London is up there as most expensive, Liverpool ... not so much. GDP per capita 160k vs. 32k USD, just to put a number on it.

With a paid off house and a low key lifestyle one doesn't need much. Especially since healthcare doesn't need to be budgeted for as in the US.

Exactly, huge variation from place to place. Our living costs here in small town Yorkshire are much lower than where we lived in Texas and incredibly low compared to what we would be paying in London.

As for the article on saving for retirement at 67 (FRA) and suggested withdrawal rate, it is just another article on saving for retirement, but since it is another country it's not really relevant here. Who really knows what the SWR should be for a 67 year old in a country where there are no oop healthcare costs that are going to be rising, or transportation costs for those that use the free bus passes for seniors, free eye tests, free prescriptions etc.

 

[Alan]

Source is my husband's friend. We refer him to Vanguard and even then he said his pension requires him to use an advisor. This is the guy who pinches pennies and ate 4-year old out of date picked onions. In other words if he didn't have to pay any fee, he wouldn't.
Now that you mention it, I will have to ask him next. Honestly, I have no beef in this fight. I thought it works the same as in USA. But I've found out a lot of things in UK don't work as I imagine in USA.

It sounds like your husband's friend has cashed in, or partially cashed in, his company pension, and that maybe the company is insisting on an advisor to comply with the fiduciary requirements of pension providers in the UK. It is not UK law as your post suggests that people must have an FA to manage their retirement investments.

The UK also has the equivalent of a self managed Roth where you can invest after tax money and it grows tax free and can be withdrawn tax free. (My wife and I both have one)

 

[Fedup]

It sounds like your husband's friend has cashed in, or partially cashed in, his company pension, and that maybe the company is insisting on an advisor to comply with the fiduciary requirements of pension providers in the UK. It is not UK law as your post suggests that people must have an FA to manage their retirement investments.

Not really sure, except he asked for advice on how to manage his money, he asked us about the Fisher investment, we told him to self manage and he said the law didn't allow him. Advisor charges 1-2%. Does sound like a rip off. There must be a lot of terms I'm not familiar with in the U.K. pension system. Cash in and not cash in. Greek to me.

 

[Meadbh]

But I've found out a lot of things in UK don't work as I imagine in USA.

A lot of things in many countries work quite differently from the USA.

 

[Fedup]

A lot of things in many countries work quite differently from the USA.

They both English speaking countries, so I expect some similation. The laws are weird. Like real estate, buyer can pull out a bid at the final moment.

 

[Fedup]

Exactly, huge variation from place to place. Our living costs here in small town Yorkshire are much lower than where we lived in Texas and incredibly low compared to what we would be paying in London.

As for the article on saving for retirement at 67 (FRA) and suggested withdrawal rate, it is just another article on saving for retirement, but since it is another country it's not really relevant here. Who really knows what the SWR should be for a 67 year old in a country where there are no oop healthcare costs that are going to be rising, or transportation costs for those that use the free bus passes for seniors, free eye tests, free prescriptions etc.

I saw in a house in Durham area for less than GBP 100k. But if you want somewhere down in south of England, it's not so cheap. My husband's house, a starter home near reading is now cost near GBP 500k. It's not even London but close to the tube line.

 

[Alan]

Not really sure, except he asked for advice on how to manage his money, he asked us about the Fisher investment, we told him to self manage and he said the law didn't allow him. Advisor charges 1-2%. Does sound like a rip off. There must be a lot of terms I'm not familiar with in the U.K. pension system. Cash in and not cash in. Greek to me.

The UK used to be the same as the USA in that if you had a DB pension from a private employer then that is what you got. Some years ago the law changed requiring all providers to offer a 25% lump sum (tax free) and reduced DB pension to enable folks to release cash from their pensions, certainly a good option for those with serious illnesses or other sources of income. I believe it is the law that one speaks to an FA to go over the consequences of taking cash and a reduced pension.

I have just been through the process myself this year when I started taking a DB pension from the company I used to work for. I chose to not have a 25% lump sum as I preferred the higher, COLA'ed monthly payment, having run the figures myself through retirement calculators. (I'm 62 and DW 61, and she gets survivor benefits).

I like the UK style Roth (ISA) as anyone can make contributions up to £20k per year, no requirement to have earned income and no caps on income preventing contributions. The money can be invested in cash, stocks and bonds and withdrawals can be made tax free with no penalty at anytime - you can put money in and withdraw it the same year if you want.

Yes, things are different here.

 

[Alan]

I saw in a house in Durham area for less than GBP 100k. But if you want somewhere down in south of England, it's not so cheap. My husband's house, a starter home near reading is now cost near GBP 500k. It's not even London but close to the tube line.

Excellent example of the regional differences.

 

[nun]

The UK retirement account landscape is a mess! The providers often come up with dubious charges and restrictions that ignore recent legislation.

 

[Alan]

The UK retirement account landscape is a mess! The providers often come up with dubious charges and restrictions that ignore recent legislation.

I agree, I was simply pointing out that it is not UK law that an FA has to be employed to manage one's retirement accounts.

 

[kcowan]

The laws are weird. Like real estate, buyer can pull out a bid at the final moment.

In Mexico, a seller can refuse to accept a full price unconditional bid on his property and not pay his realtor anything.

 

[Fedup]

The UK retirement account landscape is a mess! The providers often come up with dubious charges and restrictions that ignore recent legislation.

It's a mess in a lot of ways. For my husband's retirement money, the amount he had barely changed after 10-15 years later. This was in the 90s when the stock market was growing in leaps and bounds. One of his ex-friend got fed up and did ask for a change. They did move to another plan which slightly improved over the previous plan. I think the financial people in UK made out like bandits. Not the people who contribute to the retirement account. We finally decided to liquidate that small account. It's a joke.