Investing £200K for an income?? Please help

Mattyd_3

Firstly this is my first post so hello to everyone :wave:

This is my situation at the moment 18 months ago I suffered an illness that has left me unable to do my previous job. I had an income protection policy that paid me 50% of my salary. However the restrictions on retraining + voluntary work were horrendous :mad: So when they offered me £150K (I negotiated and got £200K) I accepted. My plans are to return to university to retrain.

I have talked to several IFA's however how do you know how good an IFA is? They arnt going to tell you if they are bad are they?

What I would like to come out of university with is as much of the 200K as possible left. Bear in mind I recieve disability benefits and an income from my wife of totalling approx £1200.

Our current expendature is in the region of £2200 amonth so I will need an income of as close £1000 as possible. The more the merrier so to speak. We have our first child on way end of july :eek:

The most important thing for the three of us is to minimise the use of the £200k. Also I really dont want to messs this up

Any help or recommendations would be greatly appriciated. Even a reccomendation of an IFA. Someone who has worked for you and you have been impressed. Any questions just ask

Mattyd_3

Updated...

heppy23

I would cut the IFA out the equation unless you want to spread the money about a bit so some of it gives you monthly income, some is locked away working harder.

Pretty much any good savings account will pay near to 5% a year. This give you about £10k in interest without touching your lump sum. Not quite the £1000 per month you wanted from it but not far off.
I have an account with cahoot and you can make withdrawals by BACS so you would just have to log in each month and "pay" yourself.

Have you got a mortage or any debts? Paying them off out of your lump sum would free up the money you would have spent servicing them on a monthly basis. Worth a thought.

EdInvestor

Do you know how much income you can receive and capital you can have before your benefits are affected?

If not, a visit to the CAB to work out the basics on the benefits side will be very useful as this is an area where many advisers tend to be ill-informed.

An income of 12k pa from a 200k sum involves a return of 6%. This will involve taking some risk.

claretmatt

you should note that bank account interest is taxed at 20% to basic rate tax payers. So an account paying 5% interest as the headline rate would effectively only pay 4% interest. A non-tax payer ca reclaim the 20% deducted. A starting rate tax payer can reclaim 10%

It is therefore important to ascertain your tax position to see if the above would be applicable. I believe that this will be on the basis of whether you receive DLA or incapacity benefits.

If you are a basic rate tax payer then a further possibility would be to invest the monies into a life assurance bond.

You can withdraw 5% of the capital tax free each year (providing the income does not place you in the higher rate tax band). This will reduce the amount invested and therefore the invested monies will have to provide a return of 5% per year so that your capital is not depleted. The monies can be invested in a wide collective mix of assets - cash, property, fixed interest, equities (UK / Europe / Far East) and a diversified portfolio should (although not guaranteed) provide a return of greater than 5%.

These policies are generally free from capital gains tax but couldattract a tax on encashment, which an IFA, who I strongly recommend you see would discuss with you.

In terms of which IFA to choose, it would be worth asking what qualifications they have and you should look out for K10 and K20 which are investment based.

Hope this helps

Mattyd_3

I have seen a few IFA's over the last few weeks. They pretty much suggest what you have Claret. They seem to think investing 175k in some sort of investment bond. They suggested a return of 7 to 8%. I could then remove 5% tax free leaving some in the fund to combat inflation. The 25k would be used as an immediate access fund and daily living.

I do have a mortgage of 150k

Mattyd_3

claretmatt wrote:

You can withdraw 5% of the capital tax free each year (providing the income does not place you in the higher rate tax band). This will reduce the amount invested and therefore the invested monies will have to provide a return of 5% per year so that your capital is not depleted. The monies can be invested in a wide collective mix of assets - cash, property, fixed interest, equities (UK / Europe / Far East) and a diversified portfolio should (although not guaranteed) provide a return of greater than 5%.

Which is pretty much what you suggested.

My main concern really is how to select an IFA
All I have talked to seem very competant.
They all talk the talk but do they walk the walk :mad:

claretmatt

Ok I can understand your concerns as its a large investment and you have your reservations about which IFA to use.

One suggestion would be to contact each company you've approached and ask them for a quotation based on your your previous discussions. Don't commit to a meeting at that stage and just say you want to go through the quotes with your parents or whoever.

Also ask them what qualifications they have.

Then based on these you will be able to see:-

1. The charges to the plan they have recommended.
2. The funds they are recommending. This is important and will see the level of research they have put in, as some funds are rated higher than others. I believe they should offer a range of about 5-10 funds based on the investment size to diversify it as much as possible.
3. The commission they are going to charge.
4. Any other policy benefits.

Am sure at this stage you will begin to develop a picture of who is worth their salt based on the quickness of the quote being sent and any other personal touch they will wish to offer.

Once you've got the the info post on here and I will be more than happy as I am sure others will be to guide you in the right direction.

Mattyd_3

It was quite strange but one of the IFA's mentioned that you will become very aware of the financial markets as you go along the process of investing etc. How true that statement was. I have found myself reading more and more about investments and now consider myself a little more educated after only the few days I have been researching.

I have discounted 2 of the IFA as they were wanting nearly 5% commision for any investments bought through them Even with my limited knowledge thats excessive isnt it

EdInvestor

You may wish to look at the FSA site to check the charges on investment bonds.

https://www.fsa.gov.uk/tables

They are the highest in the industry.

This, I am afraid, is why advisors often recommend them.

If you are willing to take risks with some of your money (as you would with one of these bonds) then you can obtain an income of 5% tax free by investing in a High Yield Portfolio of blue chip shares which pay good dividends.(Dividends are tax free for basic rate taxpayers).This will not deplete your capital like the bond and after you have set up the portfolio, there are no additional charges if you buy the shares through a broker with no annual fee.

I would also suggest you consider investing in some commercial property funds, which are comparatively low risk and also pay an income of 5-6%.

Plus cash of course.

Don't put all your eggs in one basket.

Would it be worth considering reducing your outgoings by paying off some of the mortgage?

Mattyd_3

The reason were not keen on paying anything off the mortgage is we are on a fixed 4.29% for 3 years starting in Dec 2005. The redemption penalty is quite high :eek:

One IFA offered quite a good deal (to me) it was 3% of total invested then any commision they earned gets paid back into my investment. So I would essentially be paying less than the 3%. They charge £1200 one off payment to produce a report though.

The commercial property sounds very interesting. My Brother in law works for one of the largest Commercial property developers in the uk so I am currently talking to him about this. He has the possibility of buying shares at the moment at a 50% discount which might be worth an investigation.