Capital expenditure instead of savings in inflationary times
Discussion
My wife and I are 68 and 74 with State Pensions and a savings and investments pot. We are currently spending a substantial proportion of those savings and investments on home improvements.
Recent spending includes or will include:
25m2 single storey extension
Summer house
New kitchen
New bathroom
Terraced rear garden (DIY with a lot spent and to spend on materials)
A few other things we fancy
Our thinking is this, with returns on savings poor and inflation going mad, the purchasing power of our money will dwindle so we should invest in the house. We can then enjoy the house and when the remainder of the money runs out, downsize and live off the difference.
I'll probably buy a newer car as well but see that as a depreciating asset whereas the house will be, if not actually increased in value, at least easy to sell in its improved state.
We're thinking of it as a way to defer the inevitable in comfort.
You can't dissuade me, it's too late. But I'd be interested to hear your views.
Recent spending includes or will include:
25m2 single storey extension
Summer house
New kitchen
New bathroom
Terraced rear garden (DIY with a lot spent and to spend on materials)
A few other things we fancy
Our thinking is this, with returns on savings poor and inflation going mad, the purchasing power of our money will dwindle so we should invest in the house. We can then enjoy the house and when the remainder of the money runs out, downsize and live off the difference.
I'll probably buy a newer car as well but see that as a depreciating asset whereas the house will be, if not actually increased in value, at least easy to sell in its improved state.
We're thinking of it as a way to defer the inevitable in comfort.
You can't dissuade me, it's too late. But I'd be interested to hear your views.
Spend on these things because they are what you want.
When you come to sell your house, the buyers may love them or hate them, but I doubt you'll make a good return.
Most people prefer to choose their own kitchen etc, and anyway, it's only new for somewhere between 10 minutes and 18 months.
Although inflation is high, at the moment builders and so forth are scarce and charging high rates.
Prices may be keener before long, if belts are tightened?
But if you were going to do these things in the next 5 years or so, you might as well crack on and avoid the risk of things getting more expensive.
When you come to sell your house, the buyers may love them or hate them, but I doubt you'll make a good return.
Most people prefer to choose their own kitchen etc, and anyway, it's only new for somewhere between 10 minutes and 18 months.
Although inflation is high, at the moment builders and so forth are scarce and charging high rates.
Prices may be keener before long, if belts are tightened?
But if you were going to do these things in the next 5 years or so, you might as well crack on and avoid the risk of things getting more expensive.
So long as I have a comfortable income, I don’t think I’ll be holding back on spending at all in my late 60s onwards.
You can’t take it with you, and putting it into property gets you some enjoyment plus adds value for any inheritance so makes sense to me.
Strictly speaking, maybe you would eek out a few extra percent in the markets rather than home improvements, but not everything in life is about money eh?
You can’t take it with you, and putting it into property gets you some enjoyment plus adds value for any inheritance so makes sense to me.
Strictly speaking, maybe you would eek out a few extra percent in the markets rather than home improvements, but not everything in life is about money eh?
I came to the same conclusion a few weeks ago. Having more than a "rainy day fund" in the bank is pretty pointless with high inflation and low savings rates. I'm effectively losing £4k a year on my cash.
I got into the habit of building up my cash reserves when self-employment became my main source of income. Now, aged 65, my company DB pensions cover all my normal living costs. The state pension will be pocket money, and I can carry on working for as long as I enjoy it. There's really no need to have more than £25k in the bank, so I decided to splash out on another car 2 weeks ago - a 2019 M140i.
I did consider replacing the conservatory with an extension, but that can wait until the builders get sensible with their prices. For now, it'll just be smaller projects, like gutting and refitting the main bedroom, lounge and hall. I've got a DC pension pot that I can cash in (if needed) to cover that.
I got into the habit of building up my cash reserves when self-employment became my main source of income. Now, aged 65, my company DB pensions cover all my normal living costs. The state pension will be pocket money, and I can carry on working for as long as I enjoy it. There's really no need to have more than £25k in the bank, so I decided to splash out on another car 2 weeks ago - a 2019 M140i.
I did consider replacing the conservatory with an extension, but that can wait until the builders get sensible with their prices. For now, it'll just be smaller projects, like gutting and refitting the main bedroom, lounge and hall. I've got a DC pension pot that I can cash in (if needed) to cover that.
DickyC said:
We're thinking of it as a way to defer the inevitable in comfort.
You can't dissuade me, it's too late. But I'd be interested to hear your views.
My only worry would be that the area you live in may for some reason have a 'ceiling' price wise, so throwing money at a property won't be fully reflected in the selling price. If not then yes, do it up and enjoy it. You can't dissuade me, it's too late. But I'd be interested to hear your views.
We live in a good school catchment area, however I'd argue that our small estate has a ceiling price wise and no matter what we do to it it will never go above a certain price. However 1/2 a mile up the road is a different kettle of fish. Non estate, large gardens, all detached, very leafy and as a result commanding much higher prices. Investment in those appears to propel prices towards the £900k - £1 million mark....our is £650k maximum.
We have expanded (5 bed ,3 bath) and are due a new kitchen but accept we've reached a ceiling. The kitchen will be done but any further substantial investment will be spent after the next move.
We are at a different stage in our lives and still have kids at school.
We took a similar decision earlier this year and have spent a proportion of our savings based on the impending inflation. Some a bit frivolous (a newer car) and some more sensible house upgrades (composite front door and windows).
Still have decent savings in S and S ISAs but most of our 'cash' savings have gone......
Only time will tell.....
We took a similar decision earlier this year and have spent a proportion of our savings based on the impending inflation. Some a bit frivolous (a newer car) and some more sensible house upgrades (composite front door and windows).
Still have decent savings in S and S ISAs but most of our 'cash' savings have gone......
Only time will tell.....
Sorry for the delay in responding, it's been a bit hectic round here. Having said that, hectic by an old fella's standards may seem quite relaxed to the less chronologically challenged. Anyway...
My interest is more in the effects of inflation. During the massive inflation of the seventies I had a well paid job and could keep pace. Now, I can't. But rather than desperately sitting on a savings pot and watching its value dwindle, we have decided to spend quite a lot of it. Not on things like once-in-a-lifetime holidays, where the money just goes, but things for the house which will probably see us out.
We aren't being altruistic but if people can be encouraged to spend surely it must help the economy. Not spending has to contribute to stagnation.
Our fall-back position is to downsize when our remaining savings are getting thin. With luck we won't have to but we are prepared to. Better that than equity release. There's a scandal in the making. The benefit for the perpetrators is the victims will have died. A disappointed inheritor's argument of, "You swindled my parents," will always sound weak.
I'd hoped to answer all the responses in one sitting but I'm going to make use of the weather and carry on with terracing the back garden. The more I do the less daunting it looks. I must be getting fitter. No, okay, probably not. I will be back, I have to lead off a bit about builders.
OutInTheShed said:
Spend on these things because they are what you want.
When you come to sell your house, the buyers may love them or hate them, but I doubt you'll make a good return.
Most people prefer to choose their own kitchen etc, and anyway, it's only new for somewhere between 10 minutes and 18 months.
Although inflation is high, at the moment builders and so forth are scarce and charging high rates.
Prices may be keener before long, if belts are tightened?
But if you were going to do these things in the next 5 years or so, you might as well crack on and avoid the risk of things getting more expensive.
Yes, I understand we won't get any return on renewing the fixtures and fittings. But, I picture when we - or the kids - sell the place, a nicely presented house will sell better than a tired house. When you come to sell your house, the buyers may love them or hate them, but I doubt you'll make a good return.
Most people prefer to choose their own kitchen etc, and anyway, it's only new for somewhere between 10 minutes and 18 months.
Although inflation is high, at the moment builders and so forth are scarce and charging high rates.
Prices may be keener before long, if belts are tightened?
But if you were going to do these things in the next 5 years or so, you might as well crack on and avoid the risk of things getting more expensive.
My interest is more in the effects of inflation. During the massive inflation of the seventies I had a well paid job and could keep pace. Now, I can't. But rather than desperately sitting on a savings pot and watching its value dwindle, we have decided to spend quite a lot of it. Not on things like once-in-a-lifetime holidays, where the money just goes, but things for the house which will probably see us out.
We aren't being altruistic but if people can be encouraged to spend surely it must help the economy. Not spending has to contribute to stagnation.
Our fall-back position is to downsize when our remaining savings are getting thin. With luck we won't have to but we are prepared to. Better that than equity release. There's a scandal in the making. The benefit for the perpetrators is the victims will have died. A disappointed inheritor's argument of, "You swindled my parents," will always sound weak.
I'd hoped to answer all the responses in one sitting but I'm going to make use of the weather and carry on with terracing the back garden. The more I do the less daunting it looks. I must be getting fitter. No, okay, probably not. I will be back, I have to lead off a bit about builders.
ATM said:
Am I the only one thinking house prices will drop as the economy suffers and people start losing jibs?
Prices go in cycles. Last drop GFC saw a step down however the volumes sold were tiny. People realised there is no point moving for a few more quid in a new job vs losing loads on selling. So they just didn’t sell waited it out job done & in that time if it was mortgages even more of the debt was paid off.
DickyC said:
Our thinking is this, with returns on savings poor and inflation going mad, the purchasing power of our money will dwindle so we should invest in the house. We can then enjoy the house and when the remainder of the money runs out, downsize and live off the difference.
I'll probably buy a newer car as well but see that as a depreciating asset whereas the house will be, if not actually increased in value, at least easy to sell in its improved state.
Generally, yes.I'll probably buy a newer car as well but see that as a depreciating asset whereas the house will be, if not actually increased in value, at least easy to sell in its improved state.
However do keep in mind that houses have an inverse pricing relationship to interest rates (much like bonds and for the same reasons), and that living too long can be an expensive proposition.
I would say that it is best to assess the pension pot you do have saved up, and estimate the remaining cash flows required until you kick the bucket. Build in some conservativeness into the estimate (i.e. overstate cash flows) and inflation. From there, at least you have a sense for when you're likely to need to sell.
If it is in your plan to do so - you can also "consult" from time to time in whatever your prior profession was, and those extra earnings always help.
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