Investing retirement lump sum

Dr_Wu · 15 October 2017 at 2:17PM

Hi

I've posted on here a couple of times previously, looking ahead to when I retire at 55 on a final salary pension scheme. Well, it's almost on me now and I have 13 days left to work.

I'll get my lump sum which together with some savings which we (sorry, this is the wife and I doing this jointly) have in across 2 Santander 123 accounts will give us in early December approx £85K to save/invest/. Mortgage is paid off, kids are through Uni. We'll have enough to live on and also to put away approx £400pcm savings.

The plan is to put 2 x £20K away in this year's ISA allocation into passive funds (such as Vanguard Life Strategy) and then after next April 1st put maybe £20 or £30K between us away in similar again. We would also anticipate drip feeding our £400pm savings into the same kind of product. We would anticipate leaving the investments alone for 10 years.

We intend to keep approx £15 to £20K in some kind of easy access cash fund just in case.

My questions (got there eventually) are:

1: Fund diversification. I know that VLS (prob 40 or 60) is already a very diversified fund which now that you can purchase directly from Vanguard (as an ISA??) it is really cheap. Are there any advantages in terms of 'not having all your eggs in one basket', by splitting the investments between different passive funds such as those offered by LG or Blackrock which I realise do things a little differently to VLS and will also incur different charges but in the grand scheme of things do pretty much the same job? Or, should we just stick it all for simplicity sake in VLS?

2: What to do with the money which will not be in S&S ISAs? Those of you who haven't fallen asleep yet will have realized that we will have 45K or so sitting about waiting for next years ISA allocation. We will also as I say keep £15-20K as a 'just in case' easy access cash reserve. We'll probably have some of next year's ISA allocation left over after lump sum and monthly savings so I guess we just stick what we can in the best cash ISA we can find and then I'm open to suggestions with what to do with the remaining (approx) £10K?

Thanks for bearing with me, as well as the specific questions I'd also be grateful for any observations/opinions about the overall plan.

Thanks in advance

greatkingrat · 15 October 2017 at 2:30PM

You could just invest the remaining money in a fund outside an ISA. Unless the investments do fantastically well between now and April, you are not going to be anywhere near the capital gains limit.

kidmugsy · 15 October 2017 at 2:53PM

Dr_Wu wrote: »

I'm open to suggestions with what to do with the remaining (approx) £10K?

£5k each of gold sovereigns. Hold for the long term as an insurance against black swans.

Eco_Miser · 15 October 2017 at 3:03PM

Why cash ISA? Have you a need for your income to be tax exempt rather than taxed at 0% (or your income is so high you don't get the PSA)?

As said, you could invest outside an ISA, and bed and ISA after April 6th.
Iweb and other fixed fee platforms could be cheaper than investing directly with Vanguard. See Monevator's table (and see the rest of that site for useful guidance on investing).

Look at keeping your cash float in a variety of current and Regular Saver accounts paying 5%-2%.
See Top Savings accounts and Regular Savings Accounts: best available for details.

Dr_Wu · 15 October 2017 at 3:29PM

Good point, wasn't aware of the £1000 PSA (had to google PSA to be honest!) We will only be basic rate tax payers so that's fine...thanks!

The only problem with the high interest rate current accounts is the amount of standing orders you need to qualify. We're okay with one and will do that up to the limit. We'll certainly look to do what we can there.

Again, had to google 'Black Swans' and yes, the thought has crossed my mind given current global uncertainties/raving madmen etc. I like to think of it as the 'shotgun and a case of beans' option. Edited here to say just had a quick look and was surprised to learn that holding some gold in some form is a really sensible idea. Also learned a new word!...'numismatics'

What about the passive funds then? Any point in spreading investments over say 3 or just stick with the easy VLS option? (and thanks for the heads up that other platforms might be cheaper than investing directly, I shall check that out).

Eco_Miser · 15 October 2017 at 3:44PM

Dr_Wu wrote: »

The only problem with the high interest rate current accounts is the amount of standing orders you need to qualify. We're okay with one and will do that up to the limit. We'll certainly look to do what we can there.

You don't need any standing orders to qualify for current accounts. You may need one each for Regular Savers.
If you were thinking of Direct Debits (a totally different concept), a certain grocer solves most requirements (see many threads on here, including http://forums.moneysavingexpert.com/showthread.php?t=5126573 )

Note that a couple can often have three of a particular current account (his, hers and theirs). Sometimes each can have multiple, which is better.

Dr_Wu · 15 October 2017 at 3:52PM

Eco_Miser wrote: »

You don't need any standing orders to qualify for current accounts. You may need one each for Regular Savers.
If you were thinking of Direct Debits (a totally different concept), a certain grocer solves most requirements (see many threads on here, including http://forums.moneysavingexpert.com/showthread.php?t=5126573 )

I always get those mixed up much to my wife's frustration. That link the thread about savings accounts and DDs is enormously helpful, many thanks.

IanSt · 16 October 2017 at 9:25AM

Dr_Wu wrote: »

What about the passive funds then? Any point in spreading investments over say 3 or just stick with the easy VLS option? (and thanks for the heads up that other platforms might be cheaper than investing directly, I shall check that out).

Some people limit their exposure to each fund company to around a £50k limit due to the maximum £50k that the fscs will protect them to. The same goes for the platform you hold the funds on.

It's not a risk that worries me too much as I have a varied bunch of investments already, but I might consider it if I had the majority of my eggs in the one basket!

atush · 16 October 2017 at 10:43AM

You are going to want to keep some of this money in cash, for emergencies/large spending such as a new car etc.

Dr_Wu · 16 October 2017 at 12:36PM

atush wrote: »

You are going to want to keep some of this money in cash, for emergencies/large spending such as a new car etc.

yep, already covered, I've read and listened to a lot of good advice (including that offered by your good self) on here over the years!

"We intend to keep approx £15 to £20K in some kind of easy access cash fund just in case."

enthusiasticsaver · 16 October 2017 at 1:24PM

We were in same position as you last year when my husband took early retirement and we had £150k to invest as his TFLS. We topped up our S and S isas which were invested in Vanguard LS60 and invested the rest outside ISA and bed and isa'd a further £40k after April. We also put some in a SIPP for me. The rest for now has been invested in high yield income funds mainly in my name as I will be a non taxpayer from next April and tax is due on dividends over £2k per annum. Over the next few years we will bed and isa it gradually although I retire in December so we will have to invest a good proportion of that too. We have left some in Santander 123, Tesco internet and current accounts as ready cash to top up pensions.

Investing retirement lump sum

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