Monday, 23 February 2015

SWR - Who Cares?

Safe Withdrawal Rate (the % of a pot of money that can be taken each year without fear of it running out before the grim reaper strikes) is a topic much discussed on FI boards and blogs. However I only have a passing interest in the subject because I don't really have a pension "pot". I'm one of those lucky people with a (modest) DB pension that will never run out and will keep going as long as I do. It's index linked and 50% of it will pass to my husband if I die before he does. So once I get to 66 I'm sorted.

My problem consists of funding the years between 58 (when I hope to retire) and 65 (when I intend taking my pension). My calculations are not around working out how much I can take, they are based on having enough there in the first place. It doesn't matter to me if it all goes and I do have the luxury of knowing how long it has to last, but it does have to be there. I'm very close to needing the money (two years this month) and still a fair way off from having it. I need the pot to grow but I haven't got a lot of time. If it shrinks dramatically I could be looking at working longer or not sleeping at nights when I do leave, so I need to secure my income for those years as tightly as possible. How to do this?

I have no training in economics and failed A level maths 3 times (this and learning to drive are the two things I've allowed myself to fail at in my life) and the dynamics of the markets is something I've only just started to take an interest in. Financial products and how to manage money (beyond the basics) is an art I'm only just learning but I think these are the two areas I need to work on.

Assess how much I need to live on.

This should be the easy bit. Working on the premise that we will need as much as we are spending now I have calculated that I will need to secure an income of £930 per month for the 20 months before my husband receives his state pension and £505 for the 64 months after until my pension becomes payable. Total = £50,920.

But at this point I am already making two assumptions:

  • that our rental property will bring in at least £4,000 pa
  • our ISA's will have grown to £70,000, won't lose value dramatically and will pay 3% dividends giving us at least £2,000 pa. 

This process also tells me something quite important: I need a substantially higher amount of income in the first two years than I do for the following 5.

Work out how much I need to produce this income and how to secure it when I've got it.

This is the tricky part. In simple terms I could just plan to save the whole amount in cash, put it in a bank account and draw out what I need each month. The problem with this is that I'm getting very nervous about whether or not I'll actually have the full amount. I have £29,600 at the moment but that could be £25,000 next week, or £32,000 depending on what the markets do. In any case I definitely need to ramp up my saving to reach my target and this will be made very difficult due to the fact that our disposable income will shrink massively in a few months when my husband retires.

According to received wisdom I shouldn't really have any of my pension in equities at all since I will need to draw on it in 2 years time. Thankfully a good chunk of it (around £19,000) is safely stored in my CIS FAVC but I will have to transfer it out in order to draw it so I will need to have worked out what to do with it by then. Maybe I shouldn't actually put this in my SIPP for drawdown but put it into a "high" interest current account instead and use it to fund the first two, most expensive, years of retirement?

It's very difficult to see how things will pan out given that we don't yet know how pension drawdown will work under the new rules so maybe when this becomes clearer I will be able to put together a firmer plan. But my more immediate dilemma is that I need my SIPP to grow but I shouldn't risk the volatility that this requires. According to my calculations I'll have just enough, but only just and only if....

I know the solution of course, spend less, save more. Any kind of withdrawing, safe or otherwise, depends on the funds being there in the first place. Perhaps I need to concentrate more on tactics for saving than worry so much about where to put the money and how to make it grow.

Having more than enough is the only way to be confident that I won't run out and it's time I acknowledged this, bumped up my targets (see below) and got on with it.

ISAs - £70,00065,344
Pension - £50,00029,600
Abundance Gen - £7,5001,500
Cash - £22,50022,000
Total - £150,000118,444
Isa To Go4,656
Pension To Go20,400
Cash To Go500
Abundance To Go6,000
Total To Go31,556

(The money in Adundance is an interesting addition because it works in quite a different way from the rest of my investments. A chunk of capital is returned each year and, so long as the project you are invested in doesn't fail (which is a risk), you can be fairly confident of that return. So this level of investment should give me a return of around £650 - £700 pa.)

Monday, 16 February 2015

Starting With the Woman in the Mirror

By the end of a week in which it became increasingly difficult to maintain any faith in the possibility of integrity and banking being at all compatible, I finally took the plunge and joined the Green Party.

This wasn't an easy decision. I was born and brought up in South Yorkshire and both my father and grandfather were miners so socialism has been in my heart and soul since birth. A degree in Philosophy didn't dislodge it from either, but rather settled it deeper, as did having children. I haven't given up on the ideas, I just don't think Labour are coming up with the goods at the moment.

The Greens haven't a hope in hell of getting anywhere in my constituency, but then neither have Labour, so I'm won't be doing anything significant by shifting my vote, but it will certainly make me feel better. Whilst reading their website to double check I knew what I was getting into, I came across the moveyourmoney initiative and their current campaign "Divest" encouraging people to withdraw support from banks that invest in fossil fuels, which is pretty much all of them as far as I can see, with HSBC being the biggest offender (surprise, surprise). My own bank is up there too.

What struck me the most about all this was the fact that I simply hadn't put 2 and 2 together as regards my recent investment in oil with climate change and the importance of creating a sustainable energy policy for future generations. I suppose I'd been telling myself that the amount involved was so small that it didn't make a difference where I put it, and that I probably had money in all sorts of things I don't approve of without even knowing it, so it was pointless being sniffy about this buy. Well in this particular case I do know and it does make a difference, so this morning I've sold my BlackRock World Mining Trust shares, taken a bit of profit and set up an account with Abundance which is a crowdfunding platform that allows you to invest in renewable energy projects.

Abundance Generation. 
I'm really interested in the current project they have under offer which involves putting solar panels into social housing in Berwickshire. I just need to check that I understand the investment properly as it's something called an Income Growth Debenture with an IRR of 7.5%. Further details state:

This is the first project on Abundance to issue an Income Growth Debenture. An Income Growth Debenture is a long-term unsecured certificate that gives the holder the right to receive a defined amount of interest income each year (for Oakapple Berwickshire 3.3% for the first year - excluding the 0.4% Pioneer Bonus), which increases annually (for Oakapple Berwickshire by 3.3%) for the life of the investment. The amount paid out is not linked to the amount of energy produced and is paid in addition to repayment of your capital in the form of regular Cash Returns.

I'm not quite sure how this all fits together. If anyone can throw any light on it please do leave a comment. Although debentures are meant to be held for the long term you can sell via a bulletin board on the site and they do state that all sales so far have been "positive" - ie have made a profit. There is obviously some risk to all this but the amount I would be investing would be quite small (£1,500), in fact you have to confirm that you won't invest more than 10% of your assets on the platform when you create an account, and I really like the double whammy of sustainable energy and social housing.

The events this week also prompted me to look at where I hold my current account, and, as a result, I've decided to switch to NationWide which come out with a MoveYourMoney score of 64/100. On top of that their Flex Account pays 5% interest on up to £2,500 for a year so we'll be setting up two (one joint for our everyday banking and one in my name to manage the rental income) and closing down everything we have with Halifax. Now I just have to work out what to do with the bulk of our cash which is sitting in a Santander account.

It's been a busy weekend but I feel better for it. I've done a lot of reading that has given me back hope that despite the events of last week, there are plenty of people out there who are working hard to give us opportunities to invest, save and use our money in a positive way so that we can secure not just our own future, but the future for us all.

I hope that at some time I will feel that I can also re-invest in the Labour Party and see it as the Party of the future but at the moment this isn't the case. Time will tell..

Labour? It is in transition. It knows the socialism it used to champion no longer functions: it knows neoliberalism does not work either. It experimented with Blairism, which for all its electoral success did not address the fundamental weaknesses in the British system. It knows it is a party for the mass of Britain, with roots that must remain in the workplace and the day-to-day life of ordinary people. It is dedicated to their flourishing, and to the justice that must underpin it. The country at different times in its history has looked to its left and right traditions to do the correct thing. It now needs Labour to complete its transition, to pick up this programme, or something like it, and implement the change we need to show how good we can be. "

Will Hutton, extract from "How Good We Can Be: Ending the Mercenary Society and Building a Great Country".

Monday, 9 February 2015

Reducing the Pain of Equity Release

Some 15 years or so ago my parents took out an equity release mortgage with Northern Rock. They inherited a large house when first married which they have lived in since and which they have always been adamant they never want to leave, but it's a very old building, difficult to heat and, at the time they took out the mortgage, needed a new roof and various other repairs. They borrowed a significant lump sum at an interest rate of 7.25%.

I have just seen the paperwork for the first time and was shocked to realise that the debt is going up at current rate of £11,000 per year. However, the debt doesn't have to be repaid until the house is sold and the theory is that house prices should rise at a rate that will compensate for the interest. It's difficult to be sure that this has been the case as the house is a bit of a "one-off" and difficult to value but I have used the Lloyds house price calculator  and it seems that they currently owe about 30% of the estimated value of the house.

I have been doing some reading around the subject as my parents have asked me to take a look at their more general financial situation and I have discovered that Northern Rock collapsed and the mortgage has been passed to Papilio UK who don't offer any new loans of this kind and don't even seem to be members of the Equity Release Council which is slightly worrying. My plan is to transfer the mortgage to another provider offering a lower interest rate (we could get 5.63% with Aviva) and hopefully release a little more equity which could be used to clear a (recently discovered) credit debt with an interest rate of over 18%.

Given my parents' situation they had few options available back then when the roof needed fixing as the only asset they had was the house. It made sense, and still does, to use that asset to give them the retirement they want, where they want it. I just need to help them do it as painlessly as possible.

Does anyone have experience of this type of mortgage or see any flaws in my plan?

Tuesday, 3 February 2015

What To Do About The Pigeons? (...or Be More Bee.)

In my garden the pigeons are definitely the top 0.1% ( except for when the squirrels are around, swinging upside down from the feeders and helping themselves to nuts, but I seem to be able to forgive them their occasional foraying raid, at least they're cute and crafty.)

However, the two pigeons that have taken residence in my garden are a big drain on my emotional resources. I get very cross when I see them strutting around, policing the bottom of the feeders, dive- bombing the smaller birds (and each other) and I spend a lot of time thinking about how to reduce their dominance over the resources. I have nailed tacks to the top of the bird table and carefully spaced the feeders so they can't reach them in an attempt to ring-fence some of the food for tits, finches, robins and sparrows and all the diverse bird life that's out there, but to very little avail. The food might be there but the best any of the other birds seem to be able to do is a quick snatch and grab before the big boys get to them. I can see them out there now, sitting on the fence watching over their domain, stuffed full of seed. I'm not kidding, I've seen them struggle to take off because they've eaten so much and still find the energy to chase the other birds away.

So, desperate to get a little "feel-good" back about my garden I have decided to investigate bee-keeping. I know it won't solve my pigeon problem but apparently it is quite feasible to site hives in suburban gardens and there might even be a very small income stream to be developed. However, the main benefit for me
would be the feeling that I'm doing something to help the environment and watching all that cooperation going on in the process. Honey bees display an extreme form of social interaction which is described as eusocial, every individual has a role and they all work together to achieve a common goal. How less like the pigeons could that be?

The survival of the fittest has worked for both these models of behaviour, but I would guess that as far as economical growth and global human well-being goes, it will eventually be proved that we have drifted a little too far towards rewarding the inner pigeon, instead of developing the inner bee. I recognise that this is a crude metaphor but it does provide food for thought. Human wellbeing and prosperity has a very definite social aspect and I suspect the 0.1% will find it harder to find happiness if we move much further down the road we are currently travelling.

In the meantime I'm hoping to get me some bees and introduce a little harmony to offset all that pigeon power.

(btw does anyone have a cunning plan to "encourage" them to go elsewhere?)

Picture courtesy of