Part 281: Pensions, Magical Thinking, and Trump

Hello and welcome back to Mortgage Advisor on FIRE.  This week I discuss pensions, and a bit on Dunning-Kruger.  Also, a couple of nice weekends with Oana.

Weekly Update

It’s been a pretty good week.  Last Sunday Oana and I went for a long walk around some of the parks in the city and had a little look in Weston Park Museum at the Pete McKee exhibition.  We had an ice cream from the van outside the park and enjoyed the sunny afternoon.  Not wanting the day to finish, we stopped off for some fried chicken at one of our favourite eateries in the city centre.  It’s a place called Terrace Goods, and their chicken is incredible.  They do something called Texas Toast which is some thick slices of bread topped with chicken tenders and pickles.  The seasoning soaks into the bread and it’s a thing of beauty.  

The working week was exactly as it sounds.  I feel like I’m getting to grips with it now, whereas the first couple of weeks I felt a little overwhelmed with the amount of stuff there was to learn.  For a long time at Lloyds I felt like I was just coasting as there was no room to really develop due to bottlenecks in the ranks above.  Now I have much more freedom and scope to develop and progress, and show what I’m capable of when a fire has been lit beneath me.

On Saturday I went to one of the private hospitals in the city for a consultation with yet another surgeon about my elbow, which has been causing pain for years now.  I’m desperate to get this issue resolved so I can start lifting weights again.  I’ve got to wait for an MRI appointment and then see what it shows.  I’m not expecting it to reveal anything that the other scans have missed.  I can’t help but think they need to actually cut my arm open and look; you know, MK-1 eyeball this, rather than relying on scans that I’ve already had.

Following the hospital visit, Oana and I had a walk down to the end of Ecclesall Road, and down Sharrow Vale Road.  We stopped in a cafe for a sandwich and drink.  I had an amazing bacon and egg sandwich on ciabatta, and it was cooked just how I like it.  The bacon was crispy and the fried egg had a runny yolk.  Obviously, I did the correct thing and had this with brown sauce.  Anyone who has ketchup on a bacon sandwich needs to seek professional help.  

Oana had a veggie sandwich that she said was a bit bland, but we shared a scone that was well made.  The disappointing aspect was the cheap jam used.  It was the sort that’s just like jelly with no fruit.  Overall, I enjoyed my food but I don’t think Oana was too impressed.  

Once we left the cafe, we walked back to a bakery that hadn’t opened on our first walk by.  They had incredible looking donuts, and we had to grab a couple.  I opted for one filled with pistachio cream.  It was great; not too sweet and not too overpowering with the cream.  I enjoyed it.  

We then stopped in Tesco to pick up some nuts to take to the Botanical Gardens where we fed the squirrels.  They are so friendly and will come right up to you to take the food from your hands.  More than once over the years they’ve climbed up me and rested on my shoulder or clung to my jeans.  Being out in nature is relaxing, but working Monday to Friday until 6pm doesn’t leave much time other than at the weekend.  

On Sunday, when this will be published, there’s the Steel City Derby between Sheffield Wednesday and Sheffield United.  As a Wednesday fan, I’m not that optimistic we’ll get a result but you never know in a derby match.  We have a slim chance of making the play-offs but defeat in this match will probably put any remaining hopes of that to bed.

52 and No Pension…

I was sent this by a good friend the other day:

I read the whole thing and it was standard facepalming stuff until I got to the last couple of sentences, where I had to go outside and take a few lungfuls of fresh air.

Yes, the little known secret to turning your finances around is *checks notes* magical thinking.

I’m not criticising anyone for not knowing what they don’t know.  A general lack of financial literacy and understanding is a societal problem.  However, once you know there’s a problem, falling back on mystical bullshit is not the answer.  Problems like this need to be tackled head on. 

One of my biggest frustrations in life is when someone is faced with a clear-cut choice; Option A or Option B. That’s it. No hidden alternatives, no third path, no magic escape route. Just two options. To make things even clearer, doing nothing isn’t really an option either, because inaction automatically defaults to Option A. It’s a simple decision: choose A or choose B.  

And yet, instead of making a choice, some people will declare, “I don’t want to choose.”  

Okay… but that doesn’t make the problem disappear. The situation doesn’t pause indefinitely just because someone refuses to engage with it. Life keeps moving, and by refusing to choose, they’re still making a choice, just not an intentional one. They’re surrendering control and allowing external forces (or time itself) to decide for them.  

This kind of mindset is baffling to me. I get that decisions can be tough. I understand that fear, uncertainty, or even laziness can paralyse someone into avoidance. But refusing to choose doesn’t remove the responsibility or the consequences. In fact, it often makes things worse because the person then has to live with the outcome of a decision they didn’t actively make.  

At some point, you have to own your decisions whether that means taking decisive action or, at the very least, acknowledging that inaction is its own form of choice. Otherwise, life will choose for you, and you may not like where you end up.  

Dunning-Kruger

I’ve talked about Dunning-Kruger before.  It’s a cognitive bias where individuals with low ability at a task overestimate their competence. In other words, the less someone knows, the more confident they tend to be in their (often incorrect) understanding.  They don’t know what they don’t know.  

Donald Trump is an idiot, and a prime example of this effect, particularly in areas where he lacks expertise but expresses extreme confidence.  What’s that? Examples, you say?  Ok then… 

Overestimating His Intelligence and Knowledge 

Trump has repeatedly claimed to be an expert in fields as varied as economics, military strategy, law, and even medicine, despite having no formal education or experience in those areas. He once said:  

“I think nobody knows more about taxes than I do, maybe in the history of the world.”

“I understand the virus better than anybody.”

“Nobody knows more about trade than me.”

These statements are classic Dunning-Kruger.  People with little understanding of a subject don’t realise how much they don’t know.  

There are lists out there detailing all the times he’s made these absurd claims, as well as YouTube compilations.  Just google “Trump knows better” and buckle up for a wild ride.

Dismissing Experts and Science

A hallmark of the Dunning-Kruger effect is the dismissal of experts because the person believes their own (uninformed) opinions are just as valid. Trump has disregarded epidemiologists, climate scientists, intelligence agencies, and military leaders in favour of his own gut feelings.  

For example, during the COVID-19 pandemic, he suggested injecting disinfectant as a treatment, despite having no medical background. When met with pushback from scientists, he claimed they were the ones who didn’t understand.  Oh, and let’s not forget the whole light claim as well.  Below is a quote taken from the BBC…

“So, supposing we hit the body with a tremendous – whether it’s ultraviolet or just very powerful light,” the president said, turning to Dr Deborah Birx, the White House coronavirus response co-ordinator, “and I think you said that hasn’t been checked but you’re going to test it. 

“And then I said, supposing you brought the light inside of the body, which you can do either through the skin or in some other way. And I think you said you’re going to test that too. Sounds interesting,” the president continued.

“And then I see the disinfectant where it knocks it out in a minute. One minute. And is there a way we can do something like that, by injection inside or almost a cleaning?”

Confidence Without Competence

Trump’s business dealings also show signs of overconfidence without ability. Despite multiple bankruptcies, failed ventures (Trump University, Trump Steaks, etc.), and financial scandals, he has insisted he is a genius businessman. His unwillingness to accept responsibility for failures, and blaming others instead, fits neatly within the Dunning-Kruger framework.  

The Inability to Recognise His Own Mistakes  

A key aspect of the Dunning-Kruger effect is that people who suffer from it are often incapable of recognising their own lack of skill. Trump rarely, if ever, admits to making mistakes, no matter how glaring they are. Instead, he doubles down on false claims, even when faced with clear evidence to the contrary (e.g., Sharpie-gate, the 2020 election results).  

To say that Trump has low competence would be overstating his ability.  The man is a moron and I can’t understand how he was ever elected.  

What I’m Doing

Listening: Wool by Hugh Howey.

Watching: Cool Worlds (YouTube), In Deep Geek (YouTube).

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Financial Update

Assets

Premium Bonds: £30,500.00.

Stocks and Shares ISA: £87,375.76

Fuck It Fund: £6,786.04

Pensions: £90,527.07

Residential Property Value: £237,228.00. 

Total Assets: £452,416.87

Debts

Residential Mortgage: £184,200.23. 

Total Debts: £184,200.23.

Total Wealth: £268,216.64

In the last few weeks I’ve lost approximately £10k between my ISA and pension, as the stock markets react to Trump being, well, Trump.  I’m not saying I hate him, but if I saw him drowning I’d throw him a dumbbell.  It’s difficult to look at the world right now and see where it’s going to get better between Trump, Musk, Vance, and Putin.  The sooner these people are removed from positions of power, the better.

Back to Pensions…

DISCLAIMER

Although this is a blog about finance and investing, I’m not a qualified financial or pension advisor. My bread and butter is mortgages. Don’t base any financial decisions on what I say in this blog. Do your own research and seek professional advice. I take no responsibility for any actions anyone else takes.

Investing in a pension is one of the smartest financial decisions you can make. Whether you’re contributing to a workplace pension or a private pension, making informed choices can significantly impact your financial security in retirement.  I have seen many people over the years opt out of paying into a pension early in their working life, and this is such a huge mistake.  Those pounds invested in your early twenties have decades to compound. 

So, what to do and what not to do…

If you’re part of a workplace pension scheme, check how your employer offers matching contributions. Many employers will match your contributions up to a certain percentage, effectively doubling your investment. If you can afford it, contribute enough to get the full match as it’s essentially free money.  Even if they offer just the minimum required, it’s still a contribution to your future.  Ignoring this is like taking a paycut.  

One of the biggest advantages of investing in a pension is tax relief. The government boosts your pension contributions by giving tax relief at your marginal tax rate. If you’re a basic-rate taxpayer, a £100 contribution only costs you £80.  Again, this is free money.  I don’t get why people don’t want free money.

Review Investment Choices

Most pension providers offer a range of investment options, from low-risk bonds to high-risk equities. If you’re young, you can afford to take on more risk with equities, which historically provide better long-term returns. As you get closer to retirement, it may be wise to shift towards lower-risk investments to protect your savings.  No matter your attitude to risk, there should be a fund to match your level of comfort.  Don’t just go with the default investment choice; do some research because there may be something better suited to your circumstances.

Whilst reviewing the investment funds, keep an eye on management fees, as they can eat into your returns over time. Some pension funds charge higher fees than others, and while some fees are justifiable, excessive charges can reduce your retirement pot. Compare fund fees and switch providers if necessary to ensure you’re not overpaying.

If you invest in a global index tracker, diversification shouldn’t be too much of a concern.  Although there are arguments for investing in a range of asset classes like bonds, equities, and property, I’m content with sticking to equities primarily.

A well-diversified pension fund spreads risk across different markets and industries. If your pension provider offers a range of funds, consider something that includes equities, bonds, property, and other asset classes.  

Old Pensions

If you’ve changed jobs multiple times, you may have old pensions scattered across different providers. Consider consolidating them into one scheme to simplify management and potentially reduce fees. However, check for any exit fees or lost benefits before transferring.

If you forget about an old scheme and leave it to run, you may lose out on better investment choices or via fees you hadn’t considered.

It’s easy to set up a pension and forget about it, but regular reviews are crucial. Check your statements annually to see how your investments are performing. If necessary, adjust your contributions or switch funds to align with your retirement goals.

Consider Additional Voluntary Contributions (AVCs)

If you can afford to, making additional voluntary contributions (AVCs) to your pension can give your retirement savings a significant boost. Many workplace pension schemes allow you to make extra contributions, which still benefit from tax relief.

There’s also the option of creating a SIPP.  Although you may still get the tax relief, you may miss out on employer matching if you go this route instead of maxing out your workplace pension.  I have a SIPP to complement my workplace pensions; not to replace them.

Timing is Crucial

The longer your pension has to grow, the bigger your pot will be.  However, the more you delay drawing on your pension, the longer you have to rely on other investments.  It’s a balancing act and there’s no universal rule for this.  If you get to your pension age and you don’t need to draw it down, leaving it where it is could be an advantage, or it could be a risk.  This is something you’ll need to assess and possibly seek expert advice on.

On the subject of which, pensions can be complex and it’s a good idea to seek professional advice if you are in any way unsure about how to proceed.  

That’s all for this week.  Thanks for reading, and I hope you have a great week ahead.

DISCLAIMER

The views and opinions in this blog are my own, and do not represent the views or opinions of my former, current, or future employers, nor should they be considered advice.

If you want personalised financial advice, seek an appropriate professional.  If you are in financial difficulty, seek advice via the resources below:

StepChange

MoneyHelper

Biolink 

You can now find all my social media pages by checking out my Biolink:

bio.link/davidscothern.