Interest as income

Mick7299 · 8 July 2010 at 12:13AM

I am just about to receive a large compensation payout of approx £800000. I am receiving it because I had an accident which has left me disabled, and I would like to live off the interest and use it as an income for my family as my wife has had to leave her job to care for me.
What is the best way to do this please?

RayWolfe · 8 July 2010 at 8:30AM

If you don't know anything about savings and investments, you need to appoint an IFA to help you.

Mickygg · 8 July 2010 at 9:09AM

As Raywolfe says - for that serious amount of money you need an IFA. However while you are deciding when you receive the money, put this straight away into the highest interest paying instant access account - at the moment they are paying about 2.8%.

Remember though each bank/BS group only has a £50k comp limit if they go bust.

dunstonh · 8 July 2010 at 9:15AM

I would like to live off the interest and use it as an income for my family as my wife has had to leave her job to care for me.

Thats quite a risky way of doing things. You will suffer shortfall risk (potentially) and inflation risk. Assuming you dont erode the capital, that £800k will have the spending power of around £520k in 10 years (and the income/interest will be lower as well).

div_ad · 8 July 2010 at 10:15AM

This is a complex, tricky and very important issue. You need lots of advice. Anyone in this situation does.

I guess first get the mindset that having money isn't as much of a problem as not having it. So try not to let it stress you.

Find a temporary home for the money at a good rate of interest in a safe place and with instant (ish) access.

Get lots of advice - remember you don't have to take it, you don't have to rush into investment decisions, and you don't even have to pay for it all (though if you do work with a bank or IFA and invest the money they will earn a lot for their services).

Start by writing down what you have. Cash, savings, investments, property equity, insurance policies, pensions - everything.

Calculate as far as you can your future cash needs. How much will you need and for how long? Try and think about the future, and future needs. Are there kids who will need help with education in a few years? WIll you need a new car, or house?

Think about risk. At one end you could keep it in a savings account at the bank or banks where you get low interest, inflation eats away at it, at the other you could put it in stocks and shares where you may. or may not get a higher rate of interest (dividends) and some growth in the capital. Of course you could lose a lot of it. Somewhere in between is where you are comfortable.

Think about how involved you want to be in managing this money. You could manage it all yourself, or you could pay someone (say an IFA) to take the strain from you. This then becomes a trust issue.

Then get advice and do research

Choose wisely because you will get no shortage of advice. Only a small proportion will be from out-and-out crooks. Be careful with banks - they tend to sell a small range of products and charge a lot. IFA's are usually very good sales-people (in the nicest possible way) because they have to convince you to trust them - there is no easy way of measuring how good their advice is (no league tables, no accessible track record, no 'user group' or published feedback system.

So
Who to trust?
Who can predict the future?
Who can reduce the risk so that it matches your attitude to risk?

Only by learning as much as possible yourself can you come to a decision but it will always be a leap of faith.

Sorry for the long rambling answer to a short question. And I should say I am a consumer not a supplier of financial advice. I have made generalisations, assumptions, made spurious arguments, taken educated and uneducated guesses and used scientific arguments to back up dodgy theories. A lot of the advice you will receive will be just like this but will be presented better by people with letters after their names, and will cost you a lot more money.

Good luck

chucknorris · 8 July 2010 at 10:32AM

dunstonh wrote: »

Thats quite a risky way of doing things. You will suffer shortfall risk (potentially) and inflation risk. Assuming you dont erode the capital, that £800k will have the spending power of around £520k in 10 years (and the income/interest will be lower as well).

I agree my, wife and I have a few investment properties and planned to sell up and live off the interest when I was about 60-65 (I'm 52 now) depending on the market. But obviously this recession has focused on our minds a bit earlier on exit strategy and one thing that concerns us is inflation. For that reason we are likley to keep at least 50% of our properties as the rental income is quite good.

amcluesent · 8 July 2010 at 6:16PM

>What is the best way to do this please?<

Is this for real? To trouser £800K in compo, I assume you'll have had significant legal advice, most of whom will also advise on investment portfolio. For what it's worth, a chap I know got many £1000s after NHS bungling and has it in 4 investment trusts, spreading his risk across bonds, shares, property etc. with the aim of providing for the kid after the parent's death.

Ifts · 8 July 2010 at 6:33PM

What is the best way to do this please?

On the sort of money you are talking about here I would advise you to get Independent Financial Advice.

Link: http://www.unbiased.co.uk/find-an-ifa/default.asp

To select from all 8,000 IFA locations (not just the ones who have paid to advertise) untick the box in section 2.

If you do go down the IFA route and are not sure on their recommendations, come back and post here what you have been advised to do so others can give you their opinions on the advice.

Interest as income

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