Retirement Round-up for February 2016

Inflation is low, and gets lower as we age

Whenever a change in the rate of inflation is announced, we tend to think that this is one statistic which affects everyone equally. But this really isn’t the case... and it could spell good news for people in retirement.

Price inflation records the rate at which prices are increasing in the UK. Back in the 1970s, inflation stretched beyond 20% – but for many months now, the headline measure of inflation in the UK (i.e. the consumer prices index) has been below 1%. For many of us, this is a wholly positive thing. It helps us manage our budgets and it avoids the buying power of our savings being eroded.

None of us are average

But, as with so much we hear, it’s sensible to look beyond the headlines. In January, for example, it was announced that the headline rate of inflation was just 0.2%. This headline figure is based on the average shopping basket for an average person in the UK. None of us, however, are ‘average’. Shopping habits change as we move through our lives. For example, official figures show we spend a greater proportion of our money on education when we are young, and a greater proportion of our money on food when we’re old. 

These spending differences have implications for inflation rates we each experience. Taking the examples above, the young are actually incurring a higher rate of inflation because the cost of education is rising relatively quickly, whereas the old are benefiting from lower inflation because the average cost of food is actually falling.

An inflated rate of inflation?

While the headline inflation rate is 0.2%, Aviva estimates that the under-30s are actually experiencing 0.6%, whereas the over-75s are experiencing no inflation at all.

Looking at the underlying data, the typical low-inflation ‘winner’ would be someone aged over 75, who eats meat, drinks alcohol, enjoys photography and plans to buy a second hand car. All these activities have witnessed at least a 4% fall in prices.

A typical high-inflation ‘loser’ would be someone aged under 30, who smokes, enjoys reading books and newspapers, travels abroad and is still in education. All these activities have witnessed at least a 4% rise in prices.

Careful and regular budgeting can help us manage our finances, regardless of the inflation we may be personally incurring. Aviva’s free budget planner can help.

Lottery winners still losing out... slightly

January saw two lottery tickets share a record jackpot of £66m. Shortly after the draw a couple from Scotland came forward to claim their half. Since then, a (perhaps) surprisingly large number of people seem to have remembered buying the remaining winning ticket – unfortunately incurring some well-publicised mishaps with washing machines and the like along the way.

When the real winner was eventually found they decided to remain anonymous. The desire to keep a low profile is understandable, but each day without claiming comes at a price. A simple calculation suggests the winner missed out on over £1,000 of interest each day. 

There is a 1-in-45 million chance of winning the UK lottery jackpot. Apparently there is a 1-in-300,000 chance of being struck by lighting. It makes you wonder if the walk to the corner-shop to buy your ticket is worth the risk. 

If you’re the anonymous winner and you’re not sure what to do with your millions, Aviva’s short video about saving and investing might be of interest...  

The investment battle of the sexes

The Earth’s population is pretty much 50/50 female and male. But this equal divide has yet to make its way into the world of investments. Recent research by the fund manager MorningStar found that less than 10% of the 7,500 fund managers in the US were women, and women exclusively ran only 2% of the total funds under management. This compares to 33% of lawyers, 37% of doctors, and 63% of accountants and auditors being women in the US. 

Looking at performance there was little difference between funds run exclusively by men and those run exclusively by women. Interestingly, it was the mixed-gender fund teams which delivered the best results. 

Photographers celebrate later life

The British Gerontology Society focuses on research to enhance and improve later life. In 2015 it ran a photography competition to reflect the multiple realties of the post-retirement years. It encouraged entrants to look beyond the traditional stereotypes. 

1,200 entrants from around the world did just that, and in January 2016 the winners were announced. You can take a look at the successful entries here. Brilliant, we say.

My home is my (expensive) castle

House prices traditionally stoke many a dinner-party conversation, and new research brings fresh insight to the debate. Swiss financial services company UBS recently stated that London house prices were “the most overvalued in the world”. They considered 15 major cities around the world and concluded that London was less affordable for locals who wanted to buy than any city except Hong Kong, and that it was at most risk of prices falling.

In a separate report, the latest house price figures from the Office for National Statistics showed that the average house price in London is £470,000. This compares to £278,000 for the whole of England (including London), £191,000 for Scotland, £178,000 for Wales and £144,000 for Northern Ireland. 

All regions had witnessed average price rises, above inflation, over the previous 12 months. One (small) encouraging insight was the (slight) fall in the average age of the first-time-buyer, from 31.6 to 31.5 years old.

Our December 2015 issue of Thinking Ahead considered the possibility of using your property to fund your retirement. It’s worth a look.

These articles are not intended to give advice or a personal recommendation. If you need a personalised recommendation based on your personal circumstances, you should seek financial advice. You can find a financial adviser in your area at www.unbiased.co.uk

AR01605  02/2016

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