Late retirement planning

jamesd

Using a National Statistics series the CPI was 100.0 in May 2005 and 113.5 in March 2010.

According to some paper HL literature the income payout on £10,000 invested was around £360 in 2000 rising to around £730 in 2009. Very crude numbers, picked off a small chart but around 102% income growth over the period. 2004's payment was about £420 and the £730 is 74% more than that, compared to the 13.5% inflation over the period.

At HL you can see the value of the income units without income or choose total return. It was about break even over five years in capital value until the recent drop of 2.8% in most markets over concerns about Greece.

Adding some Invesco Perpetual High Income to the mix, the capital value of that is up around 26% over five years at the moment. Not paying as much income out, though.

Add some bond funds for income provision and some growth funds and pick a time when markets aren't in a drop and it's likely to work out well enough long term. Or take less income if you want to be more cautious. That would be prudent at say the start of retirement.

To give a better idea of how the capital value (not total return) varies, here are the highs and lows for the last five years, all roughly read from a chart:

FTSE All Share Index: about 43% up in summer 2007. About 25% down in spring 2009. About 20% up now.
Newton Higher Income: about 36% up in summer 2007. About 25% down in spring 2009. About 3% down now.
Invesco Perpetual High Income: about 61% up in summer 2007. About 1% down in spring 2009. About 26% up now.

It's not risk free and there will be capital value and income variations, both up and down. Risk free returns of 6% over inflation aren't available. Even 2% over inflation risk free is likely to be hard to find. Adjust the income you take according to the mixture you choose. If that's all risk free bank savings accounts it'll be close to no income after inflation, or negative.

arjar

Thank you for clarifying the risk issue. The only completely risk free inflation proofed savings account I'm aware of at present is NS&I's savings certificates, which provide a guaranteed 1% over inflation if left to complete their 3 or 5 year terms. Not much - but it's tax free and better than any ISA that I'm aware of. I've searched in vain for other RPI or CPI linked products but not found any - I'd be interested to hear of any you're aware of.

jamesd

arjar, one of the building societies offers PIBS that pay RPI+something. PIBS are similar to corporate bonds, with capital values varying and the risk of loss of capital if the society became bankrupt. I'll check the details later.

The NS&I product is about the best there is for most people who want an extremely low capital risk.