Some advice for our escape plan?

edited 30 November -1 at 1:00AM in Pensions, Annuities & Retirement Planning
18 replies 853 views
docscooterdocscooter Forumite
7 Posts
We are a married professional couple (both 36) who plan in 6 years to get out the rat race. Our plan is to sell up at 42 and work abroad in holiday type roles. We expect this will only cover subsistance, so no real extra saving during this time but equally no dipping into our investments. At 50 we will pack in and retire abroad (like to be Europe).
Current investments include; a house worth £320K that we will pay off in six years, growth ISA's worth 95K and general shares and bank deposits of 25K. In addition and are putting the maximum into the two growth ISA's which we will continue for the next six years.

Questions we really need help with:
1. How could living abroad affect ISA's (if at all)
2. Would our AVC investments (currently £200p/m) be better used in other funds, or can we use this investment at 50 rather than 65?
3. Where are our non ISA investments based placed in six years time?
4. We assume the growth ISA's are best switched to income ISA's at 50?
5. What sort of returns can be expected on income funds where you take income but hopefully keep pace with RPI?

Really its all about the best possible ways of investing now and during our period 42-50 for max gowth and then understanding the best possible low risk income from 50-65 (taking into account our location outside the UK)
We will both have company pension income from 60-65.

Thank you to anyone who can help with all or just part of this
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Replies

  • seven-day-weekendseven-day-weekend Forumite
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    I don't know about the other things but you won't be able to contribute any more to your ISAs if you move abroad, although you will still be able to gain interest on them.
    (AKA HRH_MUngo)
    Member #10 of £2 savers club
    Imagine someone holding forth on biology whose only knowledge of the subject is the Book of British Birds, and you have a rough idea of what it feels like to read Richard Dawkins on theology: Terry Eagleton
  • dunstonhdunstonh Forumite
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    2. Would our AVC investments (currently £200p/m) be better used in other funds, or can we use this investment at 50 rather than 65?

    Almost certainly, although that would depend on the quality of the AVC.
    3. Where are our non ISA investments based placed in six years time?

    Depends on where you are going and what investment options they have. If you intend to come back to the UK and a whole load of other things I wouldnt worry about too much now.
    4. We assume the growth ISA's are best switched to income ISA's at 50?

    Maybe, maybe not. Many ISA providers allow a fixed regular withdrawal and there isnt a need to move to income units/income funds just because you are taking a regular withdrawal.
    5. What sort of returns can be expected on income funds where you take income but hopefully keep pace with RPI?

    Depends on your attitude to risk. I know you said low but that doesnt give a lot away. Low to you could be someone elses high. However, a spread of 5-10% p.a. average depedending on your acceptable volatilty would be expected. Some years better, some years worse. It also depends on the quality of the portfolio. Stick it in a single fund from a bank and you wont get far.
    I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
  • EdInvestorEdInvestor
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    You'll have to get used to risk as you won't have enough to retire that young in comfort.

    Have a look at the HYP idea
    Trying to keep it simple...;)
  • dunstonhdunstonh Forumite
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    You can build a lower risk portfolio than a HYP and have the potential to get in excess of 10% a year. You dont need to get used to that level of risk. Although some risk will be required.
    I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
  • EdInvestorEdInvestor
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    No need to put your whole portfolio into the HYP - but it's a very useful idea for the equity portion, with no charges and risk protection.

    Commercial property funds/IT are another good area for both capital growth and income at lower risk.Different asset class from your home.

    Have a look for a long thread started by "Shiredeon" inquiring about how to invest in the context of moving to France.The tax situation is quite important. This is one reason why it's probably not possible to plan too far ahead.

    Just try and accumulate as much money as you can while protecting the downside.
    Trying to keep it simple...;)
  • Thanks every one for your comments so far, it is all very useful for us.

    We appreciate that the money (whilst no small amount) is not going to offer a 'big' income each year, but it is all about change of life.
    I think we can accumulate £530-550K by 42 (more if we stop AVC's), which can then sit and grow for another eight years.
    At 50 we would love to get an net income of 5% on all investments (if possible?), whilst at least keeping pace with RPI. Anything extra is a bonus. This hopefully gives a better idea of risk position.
  • dunstonhdunstonh Forumite
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    5% average has historically been possible with low risk investments with some growth as well. I reviewed a portfolio last week that started in 2001 before the crash and did 4.8% in first year followed by 5.4%, 13.8%, 15% and 13.6%. Easily supporting a 5% net withdrawal.

    With increased risk, such as Eds HYP, the 5 year overall figure would have been better but the zig zags over the years would have been greater. How much volatility you are willing to accept in the return for greater potential is something you need to consider. A typical HYP would have seen 2.5% in that first year, -4.7% in year 2, then 19%, 22.3% and finally 24.1%.

    Some people would go with the first one as they need the investments to be steady eddies but others wouldnt mind a bit more risk for increased potential and go with the second. Every individual has a different risk view. Something that is often forgotten on this board where everyone is told to go into the same strategy.
    I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
  • EdInvestorEdInvestor
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    With the HYP strategy you need to look at the income, ie the dividends, which has been shown to be surprisingly stable, even in major crash conditions - much better than cash.It doesn't matter if the capital value fluctuates.

    Have a look at the income and performance of this demo HYP 2000-2005

    Of course the overall performance has been way ahead of the index, but that income return is very encouraging to anyone who is retired - an HYP owner would barely have noticed that the worst market crash for a generation was going on. :)

    I repeat that a retired person would normally have other lower-risk investments in a portfolio as well as an HYP - or its unit trust equivalent, equity income funds.
    I reviewed a portfolio last week that started in 2001 before the crash and did 4.8% in first year followed by 5.4%, 13.8%, 15% and 13.6%. Easily supporting a 5% net withdrawal.

    What was this portfolio invested in?
    Trying to keep it simple...;)
  • hello again,

    Had a look at the HYP and it looks a good concept. Is the idea that this is set up by simply purchasing shares or do you buy an equity portfolio through a fund? In addition how does this system work differently to a high income fund that one of the investment companies market?

    To also go back on a few points:

    There was comment that it could be better to put AVC money elsewhere. Our funds are both Standard Life and have been running for 6 years. My issue is that we will only invest in them for 12 years and the whole concept of annuities, which i have fallen out of favour with. However if I am aready paying the max into ISA's where better to put £200p/m?

    In addition what are people thoughts on bonds for income?
  • EdInvestorEdInvestor
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    docscooter wrote:
    hello again,

    Had a look at the HYP and it looks a good concept. Is the idea that this is set up by simply purchasing shares or do you buy an equity portfolio through a fund?

    You buy the shares directly.Just set up an account at a discount broker ( eg Seltrade). No fund involved.
    In addition how does this system work differently to a high income fund that one of the investment companies market?

    The equivalent to an HYP in the fund universe is the Equity Income fund category. The big difference is that there are no charges. As the HYP is very low maintenace and involves no trading, it's very easy to manage, same as a fund. When you want income,paying as much as 1.5-2% annually in charges takes out a very big bite from your 5%.

    However if I am aready paying the max into ISA's where better to put £200p/m?

    If you are basic rate taxpayers, I would ay into an HYp definitely as the dividends are tax paid and you have a large CGT allowance. You'd pay 25% tax on the divis if on HRT, which is not much @200 a month.Try a Halifax Sharebuilder account which has very low dealing charges.
    In addition what are people thoughts on bonds for income?

    I prefer commercial property, IMHO bonds are too risky these days.
    Trying to keep it simple...;)
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