What best to do with £400k lump, elderly, no pension?

squink

Hi - desperately seeking solution for elderly relative, inherited £400k, only state pension, small share dividends, wants to buy house @£250k - what best to do with the rest to enhance income?
Some advice already given:

• spread across cash ISA, best rate (variable) savings, premium bonds (confused as to value of last ie. worth it?) Would earn pretty small interest, but something and is fully safe BUT if not enough would have to live off capital also
• rent instead of buying to have more capital to live off (as above)
• use IFA (known to me, seems a smashing bloke, got us good mortgage and solicitor recommendation, seems a whiz on investments, BUT...?) who advises: have emergency pot eg. 6 months living costs (? then what? she's elderly) and invest rest in low risk investments using a discretionary fund manager (globally - Brookes and McDonald - any knowledge of?) who'll spread thinly to reduce risk and actively manage, anticipating growth (he says) @ 3-5%, after easter. Advised expected to pick up then, and then slow growth.

Question: is an IFA who appears to promote using DFM/investment, for elderly person with minimal income, who also promotes commission payments
over fixed fees, and who has projected she should expect 5-6% interest this year (calculated for potential income) sound?? What he's suggesting ref. using DFM sounds a good idea, but is it? Others say not to touch shares for an elderly person with little other money as can't risk any risk.
Just terrified I've found her an iffy IFA, thinking he's the bees knees, knowing nothing myself of finance.
Thoughts gratefully received

chopperharris

Stay away from anything with risk at all for investing in a late age group , if you are questioning it then you already know that.

Why buy a house , uncertain times and all that.Rent instead of buy , should be a rebate there too...theyve no doubt well earned it.250k is plenty to pay for part of a perhaps 100 percent rebated rent from its interest , no upkeep of property in the future by the renter and no risk of the property price going down or it being a lemon.

Sounds like like for like capital depreciation through inflation wont be that much of a problem , as long term isnt going to be that long a term in this situation.

Get it in a trust to protect it.Full time care might be around the corner so council clawback for funding will eat away any inheritance unless its set up beforehand.

Get the usual pb's at max as said , and isas for this year and next year and every following year with any excess left over.Dont worry about the whole "but its low interest" thing , its safe , secure , tax free and no need to declare on rent/tax rebates and theres the bonus of the chance of a big win.Actually it helps bring down tax our savings tax bill to just below a bigger threshold by a couple of quid .

Whats left half into fixed term and instant with bonuses for least withdrawals , split as the usual amounts per institution.If you/they want less hassle/interest and 100 percent safety you could put it all in NSI.

My ifa advised low risk portfolio is still down 25 percent in six months , I too was promised at least 6 percent growth by an ifa....but the usual disclaimer applied....and theres still yearly fees on top of that.Still folk have lost more than me and have less time to recoup it.

gozomark

chopperharris wrote: »

I too was promised at least 6 percent growth by an ifa

were you really promised ie guaranteed ?

gozomark

OP - a per CH - keep away from investments, too late in life. Do they intend on spending it all before they die, or do they intend on leaving some behind ?

how much do they think they need to live on per annum and so how big is the gap after allowing for the state pension ?

dunstonh

IFAs are not usually allowed to recommend shares. That is the remit of a stockbroker although some firms do have a stockbroker attached to them. A discretionary investment manager is authorised to deal in shares and other direct investments.

You dont actually mention the age of the relative. Typically once you get to 80, then it gets much harder to justify risk based investments. Although there are still plenty of times where it is valid. Plus a number of providers will actually give free of charge death guarantees on investments. So, if the money is going to be there for life then that may be the only guarantee required.Also, if income is required with a need which is guaranteed for life, there are products that will guarantee a 5% net income.

With cash rates as low as they are, then there is no risk free option. Investment risk is one thing but so is inflation risk and shortfall risk.

If the relative needs an income which equates to a certain percentage (you dont say what) then will cash provide that income without touching the capital? You say capital will erode but not by how much. Of course, the more it erodes, the less interest that is paid and the more the capital will erode. A spiral takes place and eventually all the money is gone.

So, there is potential for investment options but not enough to say what.

getmore4less

Unless there is a great desire to hand the money on then I would also look at spending some, do this thing they always wanted while they can.

£12k py can go a long way once the esentials are covered. could give 10-15 years of very good living depends on health and desires.

What level of income is needed to bring the current income up to a minimum level.

For a purchase I would look for a low maintenance high efficiency place, might cost a bit more now but reduces the dependancy on future income also consider future needs, no point in having to move again unless it is out of own housing, costs of moving are high with a buy/sell.

AS well as chasing(lot of work) all the high rates savings options, Index link NS are a usefull safe way to tie up some money for a few(3/5) years for future spends and at least keep up with inflation.

squink

chopperharris wrote: »

Stay away from anything with risk at all for investing in a late age group , if you are questioning it then you already know that.

Why buy a house , uncertain times and all that.Rent instead of buy , should be a rebate there too...theyve no doubt well earned it.250k is plenty to pay for part of a perhaps 100 percent rebated rent from its interest , no upkeep of property in the future by the renter and no risk of the property price going down or it being a lemon.

Sounds like like for like capital depreciation through inflation wont be that much of a problem , as long term isnt going to be that long a term in this situation.

Get it in a trust to protect it.Full time care might be around the corner so council clawback for funding will eat away any inheritance unless its set up beforehand.

Bit unclear on terms - interested in your ideas re renting, what do you mean by "rebate"? Do you meaning housing benefit, in which case the capital would surely mean that wasn't an option?

Main insecurity ref renting also is the insecurity - she rents now (needs to move more central), has a new contract every 2 years and gets really panicked by that, even though realistically the landlords wouldn't want to kick her out and make themselves unpopular. Insecurity a much bigger demon when you're elderly (for her anyway).

Also (me knowing so little) how do trusts work? That sounded useful, as don't understand the in's and out's of how the state can take your dosh, but am wondering if you go the more "middle class" route and buy a house (thinking that's more sensible and solid) whether it's actually less secure these days ie. should care be needed?

She's late 70's; when I worked out very rough yearly return from spreading across savings (av. @3%) at around £4k (after buying house), she said that's more or less what she's used to getting from her dividends (I think), although has incredibly low cost of living where she is now (low rent, cheap fuel, hardly uses any electricity) so will get a shock in the outside world.
Didn't seem offput by such a low amount, but wonder how realistic she's being - is not good at calculating her needs (when I asked her for a ball park yearly requirement, couldn't give it - very muddly)
Think the house buying thing is in part her background/generation - assume she aims at passing on inheritance for same reasons.
Having worked out the figures roughly she should have between £13000 -17000 pa after rent's paid (20/25 years) if she didn't do the conventional (ie. she rented instead), incl. 3% interest - not wealthy but comfy if the rent's paid.
Thanks for all the comments.

chopperharris

Capital will be fine if its in trust for future care needs.In some cases it doesnt matter at all.Still get a free session with a trust lawyer to check out the options and charges , family can be a benefitting trustee also and help with I.Tax. They willl sort out savings/income tax efficency/accounts etc.

Rent rebates for single occupancy , disablity , even if its a private LL.Council tax rebates info too below.

http://www.direct.gov.uk/en/MoneyTaxAndBenefits/BenefitsTaxCreditsAndOtherSupport/On_a_low_income/DG_10018926
http://www.direct.gov.uk/en/HomeAndCommunity/YourlocalcouncilandCouncilTax/CouncilTax/DG_10037422

Age related property for sale.There is other sites not just the one below.

http://www.retirementproperty.co.uk/

Search out any sheltered communities through local council , or even private over 55 housing developments for buying.Its better than renting from a private LL , no asbo neighbours.Better than owning as support is 24/7 and its as hands on as you want it.Theres also plenty going on with activities and trips too in most of the sheltered flats/bungalows.No worries about bogus workmen at the door.IF its rented no worries about upkeep or replacing boilers etc too.

THis will give you an idea and the price of renting and the services that are included in these places.

http://www.shorelinehp.com/applyhome/homesforover50and60.html

ciao

ps time of their life , may outlive you

jamesd

squink wrote: »

She's late 70's;

One thing to consider here. Assuming normal health she can expect to get something more than £8,800 a year in an annuity for every £100,000 she spends buying one. That's level for a 85 year old woman, hers would be higher. If she's overweight or a smoker or ill that goes up. Potentially a lot. And it's for life, regardless of what happens to investments.

That annuity rate is greater than the interest rate on a mortgage, so it'd be cheaper to have a mortgage than buy outright. £8,800 for £100k will pay a £733 a month mortgage bill for life, assuming a long term fixed rate deal, and leaves more of the capital around for investments than buying outright.

Use an offset mortgage and the cash part of her investments, which should be quite a lot, reduces the mortgage interest and is effectively earning whatever the mortgage interest rate is, less inflation.

So, ponder using an annuity to pay the mortgage bill and to pay for all of the upkeep costs, council tax, water rates, electricity, gas and the basic income needs. Then investments can be a top-up rather than anything that could seriously hurt her lifestyle if they were all lost somehow.

That guaranteed income can also increase the ability to use things like corporate or high yield bonds and equity income funds in the investments, because all of the day to day things are taken care of.

squink

thanks - looks interesting but don't know what an annuity is? bit short of time, had quick look at your link, is it linked to having a pension as she doesn't have one?

dunstonh

Annuities are an investment product. Pensions can offer an annuity but that is certain types of annuity (lifetime annuity, short term annuity or compulsory purchase annuity). You have other annuities such as purchase life annuity which require no pension to be used.

Annuities provide an income in exchange for a capital purchase. Some annuities can return the capital on maturity. Some will pay an amount back on death, Some will return no capital. The rate of income will depend on the type of annuity and the terms it was bought under. The income on some can also be available with lower tax liability than say savings or normal income.