A QUICK ONE: The Cost of a First-Class Retirement
Now and again, when "events" happen, I'll post a shorter squib inbetween the monthly Hat-Tip Essays. This is such.
Friend,
The most recent Hat-Tip Essay of 2nd April 2024 was superficially about cash savings. Actually, it was about the omnipresent danger of inflation to our financial wealth.
And lo, as if by magic, on that very day, the price of a first-class stamp went up by 10p (!) to 135p.
Three decades ago, the same item was a mere 24p. That’s a nearly six-fold increase.
Why three decades? Because that’s the typical length of a bog-standard average retirement span for Mr and Mrs U. Kingdom.
You are not getting a six times better stamp than in 1994, and you are not buying something that does six more things than it did that year. You are spending six times as much to stand still.
If we use the stamp as a proxy for the increase in the cost of living1, we see that Lifestyle costs can increase enormously over such a retirement.
Torturing the stamp/Lifestyle analogy a little bit more:
Spending £20,000 a year in 1994? You’re now ripping through £112,500 to have the same Lifestyle as you did then.
“OK, Lincoln, we’re petrified. Give us some hope.”
Whilst the cost of Lifestyle was creeping up at 5.9% per annum, turning 24p into 135p without breaking a sweat, The Great Companies of The World (GCOTW)2 were appreciating at 9.0% a year from 1994 onwards.
Equivalent to a 3.1% annualised inflation-busting real return over the last 30 years, that’s not just keeping pace with inflation; it’s knocking it into a cocked hat. We are preserving purchasing power and growing the real value of your retirement nest egg.
Two questions that some may be pondering:
Is this sad obsession with Royal Mail stamps too simplistic? Maybe. Shoot me.
Do these GCOTW figures ignore ongoing behavioural coaching, advice and investment fees? Yep. But unless these exceed 3.1% per annum (and if they do, you’re being royally screwed), you’d still be OK three decades on. You may even have accrued a decent legacy for those you have to leave behind.
Pay heed to these figures if you want a dignified, independent retirement where the money outlives you. And be very wary of any adviser who neglects to put the dangers of inflation front and centre in their communications with you, now and for the next thirty years.
Everything else really is window dressing.
For the overly literal amongst you, I am not suggesting that Mr and Mrs U. Kingdom spend all their retirement income and savings on first-class stamps. It’s a proxy.
MSCI World Index, dividends reinvested. Source: Dimensional Fund Advisors (sic).