Here’s what I think.

Why are we so desperate to retire early?  I don’t think we’re designed to rest for a third of our lifetimes, and our life expectancy continues to get longer.  Even our “active” lives are getting longer, that is, before too many bits of us stop working entirely.

So, again, why are we so desperate to retire younger?

Is it because we work too hard?  We work really hard when we’re young, trying to get together tons of money so that we can stop working just before we get old.  It doesn’t make sense really.

I think it makes more sense to accept that we’ll have to work into our seventies (then maybe our eighties and nineties), but spread out the effort as well.  What might that mean, in practice?

Working moderately, perhaps saving less because we’re not fixed on saving it all for a life in the sun.  Like our grandparents did?

Does it sound a bit dull?  Doesn’t that depend on what we choose to do while we’re not working?

That makes sense to me, but maybe I’m just an idealist with my own business, so I can say “no” without fear of losing my job.  I enjoy what I do, so the thought of having to keep doing it doesn’t bother me too much.

The real problem may be that there aren’t enough jobs to keep us all busy.  But that’s another post, surely?

If you agree, or even if you disagree, tell me what you think?

I’m from the generation that has found borrowing easier than saving up, so I think we should be proud that we’re adjusting.  Hopefully this is a new trend, not just a recession coping strategy.

“But”

The post-war average was 7%, so we’ve still got some work to do – and we should all save 10%, so somebody isn’t saving properly yet.

“And, but”

I am aware that inflation is bad for savings – and see my previous post about that – but it’s still worthwhile…. You could always put your savings in inflation-proofed accounts.

I wonder – did the last bout of high inflation kill off our willingess to save? Answers on a post-card please….

Hi, welcome to today’s post.  These tips aren’t “rocket science”. But they do work.

One

If you don’t have surplus income, you really need to work hard – because you might suffer even more than most if your income suddenly stopped or reduced a lot.

Try to shave a little off all your spending, buy a brand or two down, cut back anywhere you can…pretend your income has already stopped.  It will work.  All that effort will create a small surplus…

Two

If you have a surplus at the end of the month, first use it to reduce your debts.

Three

Store cards and credit cards are usually the most expensive, if so – start with those.  Loans and finance agreements often don’t accommodate being paid off in small chunks, request a “settlement figure” from them, so that you know exactly how much you owe.

Then, target them – one at a time – to pay them off.

Four

BUT! Think carefully before you use your only emergency fund to reduce a mortgage.  That could leave you with no emergency money, and a lender unwilling to lend it back to you!

Five

I haven’t mentioned getting a cheaper mortgage?

It can still work, if you owe a fairly small percentage of what your house is worth now, if your mortgage is less than roughly four times your income and if you have few “other” debts.  There are still mortgage deals to be done for you (watch the fees!).

But – for many mortals, the “fairly small percentage” might be tricky. 
If your house value has dropped by 10%, that means that the 75% of the value that you owed this time last year, is now 85% (alright, 83.3%).

Six

Set aside an evening or an afternoon to have a look at your spending on gas/electric/phones/internet.

Try the Money Saving Expert website for some extensive guidance about those.

Seven

Look at your outgoings, and decide what would have to be paid, even if your income stopped.  See what that adds up to each month.

Use your monthly surplus to aim for at least three months worth of those essential spends, ideally six months or more.

Eight

Once you’ve done all that, perhaps the time is right to spend some money, even while you stick with the economy drive (and the cheap tea bags!).

Remember that you’re commissioning building work, or getting some training, or a new car, house, TV, at a time when your suppliers are likely to welcome the work.  You may be well looked after, and you may strike a better deal than doing any of those things when the economy is booming.

I think that this is a good objective to bear in mind during the recession, but only after you’ve cleared debts and made provision for emergencies.

Nine

Think about the risks of your job during the recession.  Can you do anything about those risks?.

Ten

Think about your work goals, too.  Many people work without a plan.  Even if you do have a plan, make sure it’s your work plan, not your employer’s.

Sure you have to do theirs, too, but now IS a good time to think about what you want from your work, even if you can ONLY plan at the moment.

Also, if you lose your job, it will help you to have thought about what you want beforehand.

http://www.economist.com/printedition/displayStory.cfm?Story_ID=12798307

Merry Christmas from State of the Nation

If you’ve got a pension, it’s probably worth less than it was a year ago.  So why bother paying any more in? Or, if you’re young enough, why bother starting one?

Forget, for a minute, that “pensions” usually seem to be over-priced contracts, of more benefit to the pension provider than to you.

For example, consider the sentence “do I need a pension to live on?”

Erm, I don’t know. Do you?

Will you really retire at 50?

Will you need any more than the six grand or so the state will (hopefully still) provide?

Remember thata couple of generations ago, people retired at 65 and weren’t expected to make it to 70, so they didn’t really need to worry.

Now, try replacing the words “a pension” with “some money“?

If you’ve done that, and the consequences of NOT having “some money” to live on are worse than doing without a bit of your spendable stuff today, then you’ve got over the hard bit – you need to do some saving.

You could assume that your parents will give you some money, but that might not be such a dead cert. for a few reasons.  Quite a few oldies are spending your inheritance for you.  Quite a few are finding that their wealth won’t last longer than they do.

So, back to this saving.  Old-fashioned, put away part of every month’s income, proper saving.

Should you do your saving through “a pension” or “a bank account” or “investments” or “your own home” or “a property” or “a business” or  “having lots of children“?

A pension might suit you if you if you like the idea of your saving getting an instant boost from the taxman (taxperson?).  I’m generalising so much that an actuary would faint here, but – the tax boost is the usually same as the level of tax you pay on your income.  Eg, if you pay 20% tax, then your £100 gets increased to £125 immediately.

It won’t suit you if you want freedom to spend the money any way you like, whenever you want.

A bank account might suit better if you prefer simplicity (any old bank account would do the trick) or if you might need the money before you retire.

It might not suit you so much if you regard that bank account as accessible savings.  This is a problem I encounter a lot:
‘I don’t like pensions.’
‘Fine, so what are you doing instead?’
‘Well, I had some savings but I spent them on [insert your vice here]‘.

I’m not saying I don’t trust you not to spend it…just…I’ve been lied to before y’know?

Investments? same issues as bank accounts really.  The choice between cash and investments?  I must save that for another day.

Your own home will keep you during retirement provided you can work out a way to extract money from it.  Eg, flog the house and move in with the kids, borrow against the house and let the kids pay it back from the house proceeds (provided that somebody will lend against the house at the appropriate time).

Property, other than your own home?  What can I say?  Not a popular choice at the moment.  But.  I don’t know anybody who’s lost money on property over the long term.
Long Term!
If you’ve got a 10 year plus game plan, and a nice lump sum deposit, and you choose the property carefully, it’ll probably work.

I’m assuming you haven’t the cash to buy outright, because then you’re investing not saving.  Again, that’s a whole different subject.

It might suit you if you’ve got a lump sum to throw at it, and you’re happy to be involved.  It’s your asset, nobody will look after it like you.

It won’t suit you if the thought of having the extra mortgage is terrifying and it simply won’t work if you can’t put your hands on the deposit.  Remember that the mortgage needs to be paid even if you have no tenant, and the cost of buying a property can be quite high.

A business can work VERY well.  It can keep you, and maybe the next generation, off the streets.  All you need to do is become/remain very successful.

Having lots of children will also work, but it takes years of effort.  You need to instill a sense of guilt so that they know they are expected to keep you during retirement.  Then you should probably make sure they end up rich, or the plan could backfire horribly.

There isn’t a best and worst solution, just the one that suits you best.

Some Warnings:

• If you’ve no UK earnings, all the pension stuff won’t apply to you
• Only a crazy person would do something they don’t understand.  Get more information til you DO understand, or take some advice.  Preferably from an adviser who doesn’t shift awkwardly in their chair when you ask about paying a fee.
• Anything that involves taking on a debt needs careful thought..