Thursday, 15 May 2014

Life on a tightrope

Ah! Retirement! A life of leisure! It's also a life on a fixed income. I'm sure those who 'enjoy' retirement (planned or unplanned, voluntarily or forced) know this all too well.

Oh yes, one may be lucky enough to have an 'inflation-proofed' occupational pension. But all that means is that the buying-power of the pension stays the same. The annual percentage uplift is not making one richer. Putting this another way, the money value of the pension I get in 2014 will never change, and if I'm alive thirty years from now, in 2044, my pension income will still buy no more than it does now. That's all that 'inflation-proofing' means. You're stuck forever with what you have at this moment.

If you want more, then a new source of income must be found. Or you must milk your capital.

A fixed income has very serious implications. What if some important things get more and more expensive in real terms, galloping ahead of the general rise in prices? Car fuel, or domestic heating fuel, for instance? Or food? Unless you have capital to draw on, or you create another source of income, you must trim your outlay in one area so that necessary things can still be bought. Somewhere there will be a bottom line beyond which 'trimming' turns into 'sacrifice'. I doubt whether I will ever personally reach that point, but to avoid it I know that sophisticated and very careful financial planning will be needed for the rest of my life. I can only try to imagine how it must be for those who do not have inflation-proofing, nor indeed any proper pension income at all. Worry and insecurity must stalk them every day. The fit may of course have a job to keep them going; but you can't work all your life, and one day the cold comfort of state and local council benefits is all that there is.

This is why it pays to make a Financial Plan for Life when young, and start saving asap. It's no good thinking that the far future won't come. It will. When I was growing up it was widely thought that a nuclear holocaust would inevitably engulf us all. We may have come close to it from time to time, but it didn't happen, and I don't think it ever will. What could easily happen, though, is a scenario where everyone must fend for themselves in older life, and not expect the State (or anyone else) to step in.

To speak in particular of health (which is the main thing governing the quality of life in old age), marvellous care and cures will doubtless be available - but not free: it will all have to be paid for. In these annals you have surely read that I lost £200,000 in 2011. To me that money did not represent a fat fund for miscellaneous self-indulgence: it was primarily my Medical Fund, for when the National Health Service eventually fails. Without that money, I need to keep focussed on staying healthy. A daunting but vital ambition.

All this sounds rather bleak in tone. However, any scenario in which expenditure choices have to be made can be turned into a very positive appraisal of what really matters.

Here's an example. Yesterday (with my bad back mended just enough to cope) I took Fiona into the Volvo dealer at Portslade for her annual service and MOT. She got through the MOT with no problems, but the engineer reported that the front brake pads were 70% worn, and the front discs (which were fine last year) were now lipped (so that any fresh pads pressed against them would get murdered). It was a front discs-and-pads replacement job sometime soon. Which - with the Welsh Caravan Tour just two weeks off - meant this was a job I'd have to get done before setting off on my hilly holiday, Wales being of course full of mountains and valleys. But in any case I needed to feel that the brakes would be up to stopping three hurtling tons of car-and-caravan, wherever I was, and whatever the road conditions! So I booked Fiona in to get this done, plus fresh brake fluid at the same time. Likely cost: £440.

£440! Yikes! And initial puzzlement: when the rear discs and pads were replaced last year it cost only £220. But a glance at the car explained why it would be more expensive this time - the front discs on Fiona were monster things, half as big again as the already gutsy rear discs. I felt better realising that. But £440...

And I'd thought I might eke the front brake pad life out for a few more months, maybe another year. Especially as I was now driving so smoothly, following my speeding episode. But it was not to be. At least I had more data on likely pad wear. It was clearly 30% for every 14,000 miles, or a year's motoring. Which meant that I could plan for another bill like this every three years, especially with all that smooth driving just mentioned! Useful to know.

But this brake job could hardly come as a worse moment. What a hammering my savings account would get - a wedding cheque already promised; an estimated £600 to pay for site fees and fuel on my imminent Welsh Tour; and now this extra £440. All at once. Would I be wiped out? Not quite. But my savings account balance would get perilously low. To me, 'perilously low' means I can't find the price of a new tyre on Fiona. The balance was going to dip below that.

So I decided to do things to improve the situation. I would reduce my standard of living in 2014 by just a little. Enough to allow an extra £25 a month in savings forthwith. That would help lift the savings balance away from the floor.

And I wouldn't renew the registration of my lucymelford.com domain name. This would have cost £40, and as it would last three years the spread-out cost was small, only just over £1 per month. But did having a domain name matter? No. It was a saving that could be made at once, and I made it. It might allow me to enjoy a couple of nice meals out on my Welsh Tour, meals I'd otherwise forgo to be careful and thrifty.

Actually, paying for lucymelford.com in the first place was an idea I let myself be nudged into during 2011. I had some notion that 'owning an official website' for myself would be useful - perhaps as a place to publish family genealogical material and similar stuff. And the possibility remained of a money-generating presence on the web - to market some of my unpublished photos, for instance - and that needed a domain. Nothing had yet come of these things. Maintaining a domain was a waste of money, if it were not going to be used. It wasn't hard to let it go.

People reading this who have a really decent income, and maybe lots of capital salted away, must be having a chuckle. To them £40 - or £440 - wouldn't matter at all. And there must be others who could say to me, from a different position, 'You can afford holidays? And to run a car like Fiona? My God, you don't realise how well-placed you are'. What can I say? It all depends on your own standpoint, and perhaps whether you are the envious sort. Personally I envy only those who have youth and vigour, and life chances that are now lost to me. Things you can't buy.

I'd like to have my £200,000 back, of course I would; what a resource to have. But if I had it back, and did nothing with it...wouldn't that be immoral in some way? Or if I had it back, and wasted it?

It would be a heavy responsibility, to manage that resource well. Yes, it would give me travel and personal-experience options that don't exist as matters stand; a profound sense of security; the means to create a lovely home; and the ability to offer help to other people. I also think that having such money would make me lazy, and undervalue what I do have. And having such a cushion would take away that keen sense of achievement, getting successfully through another month, in some style, and without stepping off the financial tightrope.

3 comments:

  1. Would you like to be my senior apprentice Lucy? If your pension was sufficient to live on when you retired and it is Index-linked and assuming prices in general remain relatively the same, surely that would be all you need to live on. I realise that any pension would be far less than the original income but with the addition of the State pension they would both together enable you to save a little and have some of those personal indulgences. It all depends on the lifestyle you have chosen to live. I was always taught to live within my means and if I want extras then I should improve my financial status by working harder and more often or get a better job. Once retirement comes along it is too late to make any substantial improvements unless one wins the Lottery! I hope you find a way to be able to enjoy the lifestyle you live without having to make too many sacrifices. I guess that having an automatic gearbox may have its advantages but one of the disadvantages I suppose is the fact that the brakes get used more often.

    Shirley Anne x

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  2. I was told that after eu rulings about asbestos content on pads some miserable material is now used which absorbs water and ruins the discs...

    An uncle who lived alone got the value out of his house to spend and drove a fast car up until he was 90! He worked it out perfectly and left little more than the contents of his home and I have to thank him for my computer and how it changed me...

    Otherwise I think you may have to reconsider the dominatrix idea...

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  3. My income keeps ahead of my multifarious outgoings - just - and I have no debts. Lack of a satisfactory emergency fund - £5,000 say - is really my only financial problem. I can start putting that fund in place from December this year, when my State Pension starts hitting my bank account. Till then it's a tightrope situation requiring concentration and crossed fingers!

    But, as Caroline suggests, I could always prowl the village seeking custom...

    Lucy

    ReplyDelete

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Lucy Melford