Alan Steel: Now’s the time to get perspective on facing poverty in retirement

EVERY year we’re told that the Christmas shopping period was likely to have been the worst ever for retailers. This year we’re hearing not only that, but predictions of the end of high street as we know it.

Stock market performance over the past six months will leave another deep scar on the minds of too many investors. Over in the US the extent of investor worry can be easily measured. It was reported last week that a net $455 million of new money flowed into equity funds. But at the same time over $36.5 billion went into money market funds (deposits to you and me).

Now it’s easy to get lost in numbers but that’s roughly 80 times more money going into almost non-interest bearing cash accounts than stock market funds.

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Guess what the numbers looked like at the height of the boom in early 2000?

You may recall that back then everybody was rushing to invest in stock markets because you couldn’t go wrong. The exact reverse of now. We just go on buying and selling at the wrong times.

Despite the fact we’ve lived in the last 60-odd years of the most prosperous the world has ever seen, far too many of us somehow fail to strike a balance between living for today – for Christmas, and holidays – and planning for tomorrow. By tomorrow I mean retirement.

An American survey of 80-year-old residents of old folks’ homes posed the question: “If you could live your life again, what would you do differently?” The answers it generated were unsurprisingly similar – they all said they wished they had taken charge of their life earlier and planned better for retirement.

Now I appreciate there are loads of reasons why people don’t invest. The US equity flow figures above show us that rather than not saving enough, people are simply saving in the wrong places. And probability tells us that if they saw the consequences of not saving efficiently, they’d save more.

At the end of the day, I suppose many people assume the state will look after them. Well, it doesn’t just now, and will be doing so even less in future. So let’s get some perspective on this real problem of poverty in retirement.

Let me give you a couple of examples. I’ve a friend who’s been self-employed all his life. He had to give up work slightly ahead of his normal retirement age because of ill health. But despite earning serious money over the last 15 years, he’s now having to get by on a gross income of £7,500 a year, and that includes his state pension.

A couple of weeks ago a professional partner asked for our help, turning his pension fund into an income for him and his wife.

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His accumulated pension fund was below £100,000. After removing some tax-free cash, the fund is providing £300 a month gross. Add this to his state pension and other income, and he’s having to live on an amount one-fifth of what he earned before.

So, in the early days of the new year there are two things we need to face up to:

One: the world is not ending and the smart move is to invest in good equity funds with decent income and prospects.

Two: your standard of living in retirement is proportional to the efforts you make now to save effectively and reduce taxes.

• Alan Steel is chairman of Alan Steel Asset Management