When tomorrow comes today

I’m the world’s best procrastinator. I can find all sorts of justifiable reasons for not doing something and seem to have a never-ending list of excuses to legitimise my decisions. But some things cannot be put off any longer.

Back in 2001, a co-worker in the States (much younger than me) asked me about my pension plan. I laughed. Pension plan? My motto was to live for today and let tomorrow take care of itself. Anything could happen tomorrow – I could be run over by a bus and never live to spend a penny and in the meantime I’d have scrimped and saved for a retirement that would never be.

Later that year, another co-worker told me that from the day she first started work, she’d put away very other pay check. We were the same age. We had similar jobs. We even had the same first name. But she had a new car that she’d paid cash for, a house with no mortgage, and a pension plan that would allow her retire very comfortably at 45. She also had a 20-year head start on me. I spiralled into a major depression just thinking about my penniless future and how stupid I’d been. Action was called for.

Nerded out

I met with the company’s investment advisor, a nerdy-looking type with an alphabet after his name. He took pains to tell me how irresponsible I’d been; how careless. He painted a bleak picture of what my future would look like. I was practically beyond redemption. He presented me with all sorts of options – dazzled me with fancy financial terms – pressed the buttons on his calculator with the dexterity of a concert pianist – and conjured up a scary-looking neon graph on his laptop. I left his office laden down with glossy prospectuses and annual reports, and an appointment for the following week that I never kept.

Over the next ten years, I kept busy travelling and moving around, going to school, working my way towards Budapest. I was so busy living that I didn’t give any more thought to what would happen once I stopped work and the money stopped coming in. Until last week, that is.

Scared senseless

I was in a pharmacy over in Széna tér waiting to have a prescription filled. The old lady in front of me handed in her ‘script with a 5,000 forint note. She asked the pharmacist to give her the most important tablets; that was all the money she had. She was about my height. She had her hair cut short. Like me, she wore glasses. We both wore green coats and brown scarves. In a flash, I saw my future and it scared me senseless.

I went home and immediately made an appointment to see a financial advisor – someone into ‘wealth management’. I’d talked to him socially, and had been promising ever since to get my paperwork together and go see him officially, but I never did. I’m sure I had a good excuse (or twenty) – I always do.

For three days before my appointment, I had flashbacks to my man in Alaska and his calculations and permutations, his fancy software and his alphalary of financial terms. I was in no mood to be humoured as a brainless broad, but neither was I prepared to do the necessary research to educate myself. I was nervous as hell and dreading the outcome. I could see myself on a diet of bread and water for the next twenty years as I saved enough to eke out a sad, hermitic existence for twenty more after that.

Saved from the brink

We sat over a coffee. He asked me what age I wanted to retire at. I told him. He asked how much money would I need to live on, per month if I stopped working today. I did the math. He drew an x/y graph, in biro, plotting time against money, explaining what he was doing in words of one syllable. I was actually following him! He factored in inflation and figured out how much money I’d need to give me that sort of annual dividend at 65. An impossible figure. A future of penury opened in front of me, a future I was slowly but inexorably slipping toward, one forint at a time. He continued: How much could I comfortably set aside per month, starting now? I did the math again. He pulled out a printed table of closely set figures – and taking a conservative annual return of 6.5%, showed me how much I would have saved by the time I retired. I started to breathe again. I was salvageable. The irony wasn’t lost on me: I’d to come to Budapest to find a financial advisor who spoke in plain English. I have an appointment for next week…and this one I’ll keep.

First published in the Budapest Times 24 February 2012

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9 Responses

  1. Excellent, realistic, practical post. Until you talk about 6.5%

    How are you going to get a conservative 6.5% return? I need to know. I need to know right now!

  2. Mary, you’re giving you’re age away there, but looking good for it gal!
    PS don’t believe the 6.5% growth, especially not these days 🙂

  3. Hello Ginger and Martin,

    There are many conservative funds that have track records of achieving returns in excesss of 6.5%.

    Here are two examples.

    CF Miton Speacial Situations Fund is a low risk fund.
    Annual avarage compound growth since launch in 30/12/1997 10.32% in GBP
    Invests in shares, bonds, cash, property, alternatives

    Templeton Global Bond Fund
    Annual average compound growth since launch in 29/04/1996 12.41% in GBP
    Invests in global bonds

    Certain assumptions have to be made when projecting and quantifying future financial needs such as the size of pension pot I need to provide me with my desired standard of living when I stop working. Assumptions regarding future inflation and investment returns are required.

    6.5% is an estimate as to what future investment returns might be, the actual returns achieved might be higher or they might be lower. As we are not able to see the future we have to work with realistic assumptions based upon the information that we have from the past and our views about of the future.

    The key objective for all investors is that their money maintains its value in real terms, or put another way grows in excess of inflation.

    The best way to out perform inflation is to invest in asset backed in vestments such as shares, Gold, and Property and bonds.

    Investing in asset backed investments expose us to short term volatility. So we need to take a long term view when investing and we need to diversify to reduce risk.

    Investment returns vary from one year to another. Some years returns will be good and some years will be bad. By taking a long term view say 10 years plus returns will smooth out and we are left with an avearge return.

    6.5% is a realistic estimate not a promise!

  4. Mary – my advice would be to sail wide of any broker that attempts to sell a 6.5% return. On a blog no less…….

    1. Jeremy you probably need to re read what I wrote.

      Mary asked me to reply to earlier comments so I was not trying to sell a 6.5% return. Is this clear?

      I am an experienced UK Qualified Financial Adviser with, I believe an excellent reputation.

      Most clients want to understand what returns can be expected based upon their attitude to risk and their investment time horizon.

      History tells us that 6.5% has been a realistic average return for a diversified investor. In the future investment returns may be lower they may be higher, I do not know what they will be as I can’t see into the future. The value of investment can go down as well as up and NO investment in the world is guaranteed!

  5. This post and comments were very interesting and helpful… But I have to know: Are you getting a 6.5% return this year?

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