The Sunday Telegraph of 7th July holds a clear warning to all of us.
Yields on savings, investments and property are at an all-time low.
Annuities, the cash return on a pension for life, are now at an all-time low. Typically, a £100k investment for a person at the age of 65 will realise anything from £2,910 to £5,000 per annum.
With the Annual Average Cost of Living per Household about £25000, this means that to exist today on a pension you need at least £500,000 to £800,000 in your pension pot to buy the £25,000 p.a. annuity.
The average life expectancy in the UK is 80 for males and 83 for females, for the US it is 77 and 82.
If you are aged 65 today and have a life expectancy of say 85, that is 20 years.
If you receive £5,000 a year for 20 years for each £100k invested, you only just get your money back (5,000*20 = 100,000).
If you receive £3,000 a year for 20 years for each £100k invested, you receive, £60,000 (3,000*20 = 60,000).
Meanwhile, the “professional” investors have taken your £100k and invested it. Where is the benefit to you the provider of the £100k?
The average US stock market return over the last 10 years has been about 10% according to nerdwallet.
The “calulatorsite” have a Compound Interest Calculator, (https://www.thecalculatorsite.com/finance/calculators/compoundinterestcalculator.php
If we take the £100k and invest it at 10% p.a. for 20 years the return is:
Where is your share of the benefit that the £100k has been earning over the 20 years??
Not a bad return (£572,750 after deduction of initial capital), for the annuity provider.
Quilter, an Advice & Wealth Management company, reported that in 1995 a yield of 7.5% could easily be secured on a low-risk bond. The investments to achieve anything like such a return are now much riskier.
Cash accounts that once yielded 6% are now at 1% or less. A 10 year British Government bond (Gilts), once gave us 5% return, now it is around 0.7%. I even remember guaranteed government bonds at 13% over 5 years, back in 1975.
Property no longer brings the returns it once did.
The blame is laid at the feet of the Central bankers who employed harsh monetary policy after the financial crisis that they were responsible for. This has had a devastating effect on pensioners incomes. Quantitative easing or money printing has pushed up prices.
The demise of the guaranteed final salary pension which paid out a guaranteed income means that future pensioners need to take care of themselves.
Rising inflation will have a devastating impact on any income in the future.
The, once proud, UK pound coin will soon be the new penny.
Over the years we have seen wage rates frozen and, in some cases, reduced. Low income workers are forced to take two and in some cases three jobs just to make ends meet and with no hope of a pension and retirement.
The net effect is that the worker is left high and dry.
The future is not looking so bright for many of us.
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