Re: we can't take it with us

On Sun, 15 Apr 2007 19:30:20 +0100,
mikec <mike.carter@xxxxxxxxxxx> wrote:

somebody, possibly "Terry Harper" <terry.harper@xxxxxxxxxxxxxx> wrote (about
me I think)

You are out of your mind.


I beg to disagree.

Some people above have made more helpful comments and suggestions and I'm
very grateful. If you are younger than me and IFAs then I suspect this sort
of question/problem will be raised more and more.

Consider this please if you're still with us and interested (and I am sure
it is an interesting concept):

Assume I have property worth £2m all of which I am using. It might be just
one nice house here and one holiday home. (it's irrelevant that this is not
the case).

Actuaries decide how long people will live. Let's say they advise a
financial institution (FI) that I'm good for 20 years and to be safe they
calculate on 25. (This is an insurance proposition after all, and they want
to try to make a profit, fair dinkum. Maybe they'd be cautious and say 30
years but 25 for this example.)

They will also have an advisor to say property will appreciate by something
(and it won't be -100% whatever some joker said above.) Let's say they
calculate with extreme caution that £2m worth pr property today will be
worth £3m in 20 years time.

Hence they could, interest ignored, b
hand out £3m over the next 25 years (bear in mind they don't have the £2/3m
in the kitty yet, I've still got that.)

if they gave me £3m/25 ie £120k each year for 20 years they would have given
me an interest free loan.

So someone with a computer would calculate, just like with a 20 year
mortgage but in reverse, what the annual payment should be (obviously a bit
less than 120k. Then we want it inflation linked so the starting figure
has to be reduced again (someone else with a computer!!).. Maybe it's 100k,
I have no idea.
At the end I have, as intended, nothing, it's all the property of FI. That's
what I seek.

I would not know how to spend that sort of money (100k pa) so the charity
waiting at the end won't go empty handed; but at least on retirement I
would know what my annual budget is and what i can afford. health and
nursing care insurance comes top of list, also maintenance of one or two
properties if not self financing. The rest i could enjoy, leaving some
change, surely, for the Essex Air Ambulance or somesuch.

let's pursue further!
thanks
mike

You are going to get a terrible return like this.

The calculations aren't that difficult to play with in a spread***.

Column 1. Your Age.
Column 2. Money withdrawn this year
Column 3. Interest on money taken so far (this is the interest that
someone who's given you the money would have earned for themselves if
they kept it themselves)
Column 4. Total value of money you've received so far.

I've assumed your income grows by 3% per year. So each row for column 2
= row above * 1.03

I've assumed interest at 5% so column 3 = column 4 from row above * 0.05

Column 4 = column 4 from row above + value from column 2 + value from
column 3.

If you take 30k in year 1 at age 60, by age 90 the value of the money
you've received will be >3m. If you or your wife live to 100 then the
value of the money you've received will be >6m.

If you add in 20k p.a. (1% of the 2m initial property value) for
maintenance then your looking at a value >3m by 85 and >4m by 89 for
that 30k in year 1.

The unquantifiables are what value is someone prepared to gamble your
house will be worth when you die and when you will die.

You actually need to factor inflation into this calculation as well. I
think the effect of that is to reduce the interest rate in column 3 but
it's late and I might be talking absolute rubbish.


Tim.

--
God said, "div D = rho, div B = 0, curl E = - @B/@t, curl H = J + @D/@t,"
and there was light.

http://tjw.hn.org/ http://www.locofungus.btinternet.co.uk/
.

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