How would you invest £1,000,000 for income?

Mr_Dudley · 10 May 2011 at 5:23PM

Hi

I'm new here so please be gentle!

Through some luck and good judgement I will soon be able to say I have £1,000,000 in cash to my name with no mortgage.

I want to stop work and step off the treadmill.

I will be 45 next year so that's my target date.

I have £300k already in a pension separate from the cash and this would be left to accrue until I hit 70.

So my question is where would you invest £1m to provide a steady income from 45 to 70 i.e. 25 years.

I have a wife but we never had any kids so no dependants as such.

We are confident we can be comfortable on an income of around £60k per annum.

Any thoughts gratefully received.

Thanks

Mr D

Totton · 10 May 2011 at 6:11PM

Over at Motley Fool a poster by the name of Luniversal has posted some very good information on Income investing. Here is a link to a summary of his posts,

http://boards.fool.co.uk/qn-for-luniversal-12092441.aspx?sort=whole#12092648

Basically he suggests three baskets of Investment Trusts for a portion of your portfolio. There is the Basket of 7 for Growth & Income, Basket of 8 for Income and Basket of 10 for similar. He is currently covering Growth IT's (Conviction) but the Income threads are well worth reading.

HTH,
Mickey

dunstonh · 10 May 2011 at 6:13PM

We are confident we can be comfortable on an income of around £60k per annum.

So, do you have more than £1million then or are you intending to allow the value to erode to pay the income? (as £1mill cannot sustain £60k p.a. without significant risk)

Mr_Dudley · 10 May 2011 at 6:31PM

We would like a £60k income without eroding the £1m capital but realise this is unlikely. Hoping someone can suggest better ways to invest than simply putting in the bank at 4%. Regards Mr D

Marine_life · 10 May 2011 at 8:10PM

Well lets say you can get a decent return by sticking it in the bank and there are a couple of bonds offering just over 5% now on a long term basis.

However, thats not the real issue is it?

In order to sustain purchasing power over the next 25 years you will need a considerably better return than the 6% your savings objectiv demands or else suffer a gradually deteriorating standard of living.

My question is for a couple with no mortgage and no kids why would you need 60k per annum (5k per month)? That seem like a pretty decent lifestyle? If you wre to drop that to 40-45k you would leave enough headroom with your target rate of return to build in an inflation cushion.

Achieving that return may not be easy and it certainly won't be without risk but you could look at a combination of the following:

1. Long term fixed rate savings.
2. High Yield Bond (funds)
3. High yielding shares (either directly or via a dividen fund)
4. Direct fixed asset investments.

The final one is an area I have just starting dipping my toe in. These are direct investments in things such as shipping containers, Forests, Milk Farms, Solar, Cargo Planes etc. etc. Retruns are attractive (generally 8%+) although there is a risk (however minor) of total loss.

Mr_Dudley · 10 May 2011 at 8:23PM

Thanks Marine Life

An interesting thought. Yes we need to allow for inflation. Re the £60k requirement we want to be able to ski once a year and have horses so there are costs involved with that.

However I'm not so sure about inflation. If you run the numbers, at 4% inflation, £60k becomes enough to buy you a mars bar only in 20 years but from my memory, £40k was a good salary in 1988 and it's still enough to be comfortable on now - or have I gone mad?

Regards Mr D

dunstonh · 10 May 2011 at 8:58PM

We would like a £60k income without eroding the £1m capital but realise this is unlikely. Hoping someone can suggest better ways to invest than simply putting in the bank at 4%. Regards Mr D

£1 million with no growth will be worth around £650,000 in 10 years which puts you at age 55. Another 10 years and its £420k at 65. The income will of course be lower too in real terms.

There is no one solution that will fit your needs here. It will be a spread of options, including pensions.

Marine_life · 10 May 2011 at 9:49PM

Have been giving it some more thought.

How much is your house worth and do you intend to stay there long term?

How much do you spend at the moment?

What are you doing (work wise) now that is so unpalatable?

Why are you assuming the pension will not pay until 70?

I would compare to my own situation - I am slightly older (46) but also slightly less wealthy!

I plan to retire be able to retire at 50 (not that i definitely will but I will have the option).

By them I expect to have around 1 million in cash with additional property worth around 750k (two properties). We will sell both properties and release around 300k in cash (todays values).

I have pension schemes that will pay around 50k per annum from age 62 and a further chunk of money (800-900k gross) that will be taxable but will mature between ages 60-65.

I plan to draw around 90k per annum (in real terms) for the first 3-4 years of retirement and then drop to 60k thereafter. The first years are higher as my son will still be at Uni. That will involve me eating into my savings. However after 10 years I expect my pensions to pick up the slack!

Where does that leave you?

I think a million sounds a lot but probably if you want to continue your 60 k spending through retirement in real terms you will need more money in your pension fund.

Annisele · 10 May 2011 at 10:12PM

Mr_Dudley wrote: »

However I'm not so sure about inflation. If you run the numbers, at 4% inflation, £60k becomes enough to buy you a mars bar only in 20 years but from my memory, £40k was a good salary in 1988 and it's still enough to be comfortable on now - or have I gone mad?

I think you're overegging things a little

£40k was a very good salary in 1988!

If inflation was 4% over 20 years and you got no growth on your £60k, I reckon it would be worth about £27k in today's money - which is a lot of Mars bars!

However, these estimates are all very sensitive to inflation rates. Halve your inflation estimate to 2% and your £60k turns into more like £40k in today's money, but double your inflation estimate to 8% and your £60k dwindles to £13k or so.

45 is pretty young, and you might well live another 45 years - if you're lucky enough to do that, inflation is going to bite you at some point.

chucknorris · 11 May 2011 at 6:38AM

Mr_Dudley wrote: »

Hi

I'm new here so please be gentle!

Through some luck and good judgement I will soon be able to say I have £1,000,000 in cash to my name with no mortgage.

I want to stop work and step off the treadmill.

I will be 45 next year so that's my target date.

I have £300k already in a pension separate from the cash and this would be left to accrue until I hit 70.

So my question is where would you invest £1m to provide a steady income from 45 to 70 i.e. 25 years.

I have a wife but we never had any kids so no dependants as such.

We are confident we can be comfortable on an income of around £60k per annum.

Any thoughts gratefully received.

Thanks

Mr D

Our plan when we retire is to move to a tourist area (possibly Cornwall or Devon, but still exploring) and buying a few holiday cottages, the rest would be split between stocks, bonds and savings accounts.

Mr_Dudley · 11 May 2011 at 9:11AM

Marine_life wrote: »

Have been giving it some more thought.

How much is your house worth and do you intend to stay there long term?

How much do you spend at the moment?

What are you doing (work wise) now that is so unpalatable?

Why are you assuming the pension will not pay until 70?

I would compare to my own situation - I am slightly older (46) but also slightly less wealthy!

I plan to retire be able to retire at 50 (not that i definitely will but I will have the option).

By them I expect to have around 1 million in cash with additional property worth around 750k (two properties). We will sell both properties and release around 300k in cash (todays values).

I have pension schemes that will pay around 50k per annum from age 62 and a further chunk of money (800-900k gross) that will be taxable but will mature between ages 60-65.

I plan to draw around 90k per annum (in real terms) for the first 3-4 years of retirement and then drop to 60k thereafter. The first years are higher as my son will still be at Uni. That will involve me eating into my savings. However after 10 years I expect my pensions to pick up the slack!

Where does that leave you?

I think a million sounds a lot but probably if you want to continue your 60 k spending through retirement in real terms you will need more money in your pension fund.

Hi. Through hard work we have managed to own a house worth around £1.6m. We have a £500k mortgage on it. We have never been very good at stocks and share but have always concentrated on buying the biggest house we could possibly afford, refurbishing and paying down the mortgages as fast as possible with all excess cash.

Due to a sale of a business we have also been able to buy a house in Devon which will be fine for us to downsize to. It also comes with a separate holiday let cottage that has consistently produced a gross return of around £16k pa (circa £10k pa after costs). We have no mortgage on the Devon property.

So our plan is quite simple really. We will sell the house in Surrey which produces around £1m in profit net of costs. We will then move to Devon and live in the house there. We will have around £10k from the holiday let so need £50k from the cash.

I see from other sites there are several banks / BS's that offer 5% on fixed term savings with monthly payouts. It would be easy for me to do just that and get £50k without any risk whatsoever.

My original question was if it's possible to get, say, 6% return without serious risk? I'm always reading about investing in shares and bonds as well as cash but this advice seems to come form companies that have a vested interest in me investing in shareas and bonds!

We have around £300k in a pension scheme as at today's date. We are proposing to keep this fully invested for the 25 years from 45 to 70 so it provides a decent pension for us then as annuities pay out a much higher amount the later you take your pension.

So to go back to the original question is the best thing to do just simply put the money in the bank??

Thanks - Mr D

How would you invest £1,000,000 for income?

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