Advice on the best investment on capital sum

Boohbah

I could soon be getting a windfall of 100k from the sale of my house. (Down sizing to a mobile home).
I should like to be able to live off the interest of the capital sum.
My question therefore is, how best to invest it so I'm able to draw the interest each month.

EdInvestor

What other income do you have? The maximum you can take from this capital without risking running it down would be 5%, ie 5,000 pounds a year, and that might be partly taxable depending on what you invest it in.

It may also interfere with income from benefits.

Boohbah

Hi Edinvestor, thanks for replying.
At the moment, no other income. The state pension when I retire in 3 years time.
So, how would it be best invested do you think.

EdInvestor

Boohbah wrote:

Hi Edinvestor, thanks for replying.
At the moment, no other income. The state pension when I retire in 3 years time.
So, how would it be best invested do you think.

That will depend partly on your attitude to risk ( for the time being put the money in a couple of high interest savings accounts.)

Do you know exactly how much state pension you will get? There are two state pensions and thus big variations. Get a forecast here.

Please check this first as it could make a big difference to any suggestions.

Boohbah

State Pension forecast is £95/pw.
SERPS will not apply to me.

Midas

EdInvestor wrote:

What other income do you have? The maximum you can take from this capital without risking running it down would be 5%, ie 5,000 pounds a year, and that might be partly taxable depending on what you invest it in.

It may also interfere with income from benefits.

If you invest the full £100k in a high interest account, this will yield you about £5k a year as Ed says. However, if you spend the full £5k each year your capital will be eroded by inflation every year. You might be able to live off £5k + the state pension now, but what about in 10 years time? You also probably need to take 20% tax of these figures, which reduces it to only £4k pa.

Also, if your only income was to be the state pension, you'd be entitled to pension credit, which would boost this to approx £114 a week if you are single or approx £174 pw for a couple. By releasing such a large capital sum, you'd be making yourself not eligible. You may be better off releasing a smaller sum now, keeping your house (which should appreciate in value), and thinking of releasing more at a later date.

You should probably see an IFA to discuss the options before rushing into this.

Boohbah

Thanks Midas.
This is obviously not as straight forward as I first thought.
As you suggest, a visit to a IFA is the next step.

EdInvestor

Also, if your only income was to be the state pension, you'd be entitled to pension credit, which would boost this to approx £114 a week if you are single or approx £174 pw for a couple. By releasing such a large capital sum, you'd be making yourself not eligible. You may be better off releasing a smaller sum now, keeping your house (which should appreciate in value), and thinking of releasing more at a later date.

Absolutely.Council tax will be free too.

Try going to the CAB in the first instance to get the benefits thing clear.IFAs tend to be poorly informed about this area.

I wouldn't sell, because there are also grants you can get for repairs if you are on pension credit.Also you could later release equity from your house via a lifetime mortgage repayable after you die (up to around 50% of the value, when you're older).

Hanging onto the house makes a lot more sense than selling it at this stage. Have you considered taking in a lodger?

Midas

Yes, ditto what Ed says - you should probably go to the citizens' advice bureau first to establish quite what the exact benefits situation is. should help you make an informed decision.