What we can learn from investing through the decades
In a world of constant change, stability can be comforting thing – especially when it comes to our...
The Centre for Social Justice (CSJ) has proposed that the State Pension age should rise to 70 by 2028 and 75 by 2035. This is a change from the current plan: it is due to rise to 67 between 2026 and 2028, then was supposed to increase to 68 between 2044 and 2046.
In a report entitled: Ageing confidently – Supporting an ageing workforce the CSJ said that half of all adults will be over 50 by the mid-2030s, and that the UK has fewer older people at work than similar nations.
It says today’s older people are healthier than ever before and living longer, but that the UK is “not responding to the needs and potential of an aging workforce”, with hundreds of thousands of people aged 50 to 64 seen as being “economically inactive”.
However, the government says the number of over-50s in work is already at a record high of more than 10.6million.
The CSJ has recommended helping older people “access the benefits of work” by providing support to them and employers, such as increased access to flexible working and training opportunities.
The Department of Work and Pensions (DWP) has been quick to quash the proposal, but with the retirement age slowly increasing the whole issue has got me thinking about the impact it would have.
About to turn 45 myself, the first thing that gets my goat is all this ‘over-50s’ malarkey and the thought that I’ll be classed as an older person in five years time! Sorry, but that’s not old.
So yes, I have a good 20 years of working life ahead of me and I’m happy about that – I like my job and I’d like to think there is still plenty of potential in this employee yet. I could even have a second career for heaven’s sake.
Therefore I appreciate the option of being able to work for longer, without the worry of some ‘young-un’ getting rid of me because I’ve got a bit of grey hair.
I also appreciate the fact that we are all living longer (hopefully staying healthier for longer too), so there is an increasing burden on the government’s finances – not just to pay the State Pension, but also to increase the services available [for us old people]. Money has to be saved somehow, and apparently this proposed move would boost the economy by £182 billion.
But what also gets my goat is the constant moving of the goal posts when it comes to pensions. How are you supposed to be able to plan for your retirement (preferably at a time of your own choosing) when the rules keep changing?
As Helen Morrissey, pension specialist at Royal London, warns: “While such proposals will undoubtedly save money, raising the state pension age so quickly will cause huge issues for many retirees who will not have been given adequate time to prepare.
“These people will face severe financial hardship if they have not saved enough into a pension to cover the years between leaving work and claiming state pension. The government needs to think carefully before taking such drastic action.”
The new State Pension maximum payout is currently £168.60 a week. That’s just under £8,800 a year. So anyone who doesn’t want to work until they are 75, or who can’t work until they are 75, now has a £61,400* shortfall to make up.
So the choices are: work longer or save more. It really is that simple!
Do I want to work until I’m 75? Not really. No thank you. So saving more it is.
At 45, achieving an extra £61,400 over 20 years is not an insurmountable goal. If you saved an extra £170 a month for the two decades, assuming 4% interest or returns per annum, you could have a pot of £62,352** – enough to cover the difference.
But if you are 59, not 45, and still want to retire at 68, you have a much shorter time horizon: just nine years. This means you need to save an extra £475 per month, again assuming 4% interest or returns per annum, to get an extra £61,627**.
If you have a longer time horizon and can afford to take risk. If time is not on your side, or the income is essential to you, the less risk you can take in getting there. So it’s important to be realistic.
Here are some Elite Rated funds that could have helped you achieve these goals over the past 20 or 9 years. Each fund has had the same manager for those time periods (or near as damn it). Past performance isn’t a guide to future performance, but it will give you some food for thought.
|Riskier funds||Pot of money achieved after 20 years***|
|Marlborough Special Situations||£207,626|
|AXA Framlington American Growth||£153,065|
|Schroder Asian Income||£134,994|
|More cautious funds||Pot of money achieved after 20 years***|
|City of London Investment Trust||£105,533|
|Jupiter Merlin Income||£81,783|
|Investec Cautious Managed||£71,237|
|Medium risk funds||Pot of money achieved after 9 years^|
|Polar Capital Global Insurance||£115,265|
|Rathbone Global Opportunities||£109,647|
|ASI UK Income Unconstrained Equity||£68,780|
|More cautious funds||Pot of money achieved after 9 years^|
|Premier Multi-Asset Monthly Income||£70,525|
|Royal London Corporate Bond||£68,061|
|Invesco Monthly Income Plus||£64,839|
*Based on £8,800 per annum not received by delaying the State Pension pay out by seven years (collecting at age 75 instead of 68)
**Source: Thisismoney.co.uk savings calculator
***Source: FE Analytics, total returns for £170 invested per month over 20 years: 31 August 1999 to 31 July 2019
^Source: FE Analytics, total returns for £475 invested per month over 9 years: 31 August 2010 to 31 July 2019