Monthly income from £140,000

alrightfatbloke

Hi folk's.

Wondering if anyone can me out here, it's a question regarding my mother.

She doesn't work and she has no regular monthly income, she isn't a tax payer (bit obviously by my first statement - doh!) and she has around £140,000 in various "bonds". She's got no idea with whom and what these bonds are invested with but I've recently seen her six monthly statement from Barclays and she's lost £7000 in the last six months alone!!

She'd like to take the cash and put it somewhere safe and somewhere that gives her a regular monthly income. At 58 year old she's decided she's to old to start taking risk's with her money but her "financial adviser" is telling her to stick it out and ride the storm that's hit the bond market in recent months - "it's just a blip" he say's!

Any help would be much appreciated.

For what it's worth, I've advised her to try Premium Bonds as I believe she'd get a steady £500 a month from that sort of investment.

Thanks folks!!

Juni_3

Why would she get 500 a month from premium bonds? You get nothing for those unless you win which is not guaranteed.

Any decent notice account should be paying 5.5 to 6% these days depending on how long you want to tie up for.

dunstonh

but I've recently seen her six monthly statement from Barclays and she's lost £7000 in the last six months alone!!

That is only a 5% drop and in line with most equity based investments over the last 6 months. Nothing wrong with that. Making some assumptions on the content but last year would have seen around 16% growth. Plus the last few weeks have seen much of that 5% drop being recovered.

She'd like to take the cash and put it somewhere safe and somewhere that gives her a regular monthly income.

Is it she saying that or are you?

She'd like to take the cash and put it somewhere safe and somewhere that gives her a regular monthly income.

If she does that, she has to expect a drop in her income. Without taking some degree of investment risk, it isnt possible to have an income that grows inline or above inflation over time.

If she lived off the interest in a savings account, then she would be a steady decline in her living standards and that £140k would be worth around £98k in spending power 10 years down the road.

At 58 year old she's decided she's to old to start taking risk's with her money

Age 58 is not old and at that age she needs to consider that she still has 20-30 years of life left which she needs an income. You dont suddenly stop investing because you get to a certain age.

her "financial adviser" is telling her to stick it out and ride the storm that's hit the bond market in recent months - "it's just a blip" he say's!

He is correct. The drop has mostly recovered.

For what it's worth, I've advised her to try Premium Bonds as I believe she'd get a steady £500 a month from that sort of investment.

Not a chance in hell (even if you could put it all in). That would be one of the worst things she could do.

Any help would be much appreciated.

If the investments are with Barclays, as you suggest, and the adviser is with Barclays, then change the adviser. She needs an IFA, not a tied salesman. Tied advisers, such as those from the banks, are not allowed to recommend investment portfolios and on the amount of £140k that is just not good enough. I wouldnt be surprised if she is in either the distribution fund or the managed growth and income fund. Thats where most barclays customers end up. Just not good enough.

She is a non tax-payer, aged 58. This means that she is going to see the state pension in a couple of years and be in receipt of pension credit. Pension credit is a means tested benefit and it is important that she starts planning for this now. Some invesments/savings are included in that means test and others are not.

Your "advice" would almost wipe out the pension credit costing her thousands of pounds a year from age 60. Whereas the bonds are not included in the means test.

She certainly needs advice. She certainly needs her portfolio re-adjusting, probably bringing it down in risk to a level that is suitable for her. She needs a cheaper provider than Barclays and one that offers a far better investment choice. She also needs to a review of her savings and investments ASAP to ensure that they are invested both tax efficiently and in a means that maximises her pension credit at age 60. She can do this before age 60 but once you get to within 6 months of being able to take the pension, it is too late. After that point it is seen as trying to get benefits and that will keep the savings/investments redirected in her means test calculation.

Any decent notice account should be paying 5.5 to 6% these days depending on how long you want to tie up for.

A savings account on that amount would see her pension credit payment significantly reduced or wiped out. It would also make her a taxpayer. Those two reductions could, in effect, see the interest being wiped out completely. A savings account isnt the way to go with the bulk of this money.

alrightfatbloke

Juni wrote:

Why would she get 500 a month from premium bonds? You get nothing for those unless you win which is not guaranteed.

http://www.nsandi.com/products/frsb/calculator.jsp

Check the calculator.

alrightfatbloke

dunstonh wrote:

Is it she saying that or are you?

She's now looking to have a few quid in her pocket on a regular basis so she can visit friends as opposed to waiting every few months. I'm not bothered what she does with it to be quite frank, as long as she's not getting taken to the cleaners, is happy and healthy then I'm fine with it.

dunstonh wrote:

Age 58 is not old and at that age she needs to consider that she still has 20-30 years of life left which she needs an income. You dont suddenly stop investing because you get to a certain age.

Try telling her that! She's never slept a wink for the last few months, she think's everything my dad worked for is going down the pan!!

dunstonh wrote:

He is correct. The drop has mostly recovered.

So, stick to what my dad knew best?

dunstonh wrote:

Not a chance in hell (even if you could put it all in). That would be one of the worst things she could do.

Fair do's, it was only a suggestion, that's why I'm asking the question - obviously.

dunstonh wrote:

Pension credit is a means tested benefit and it is important that she starts planning for this now. Some invesments/savings are included in that means test and others are not.

Excellent advice, best thing you've said, I'll tell her this tomorrow.

dunstonh wrote:

Your "advice" would almost wipe out the pension credit costing her thousands of pounds a year from age 60.

Like I said, that's why I'm asking!

Juni_3

alrightfatbloke wrote:

http://www.nsandi.com/products/frsb/calculator.jsp

Check the calculator.

Those are fixed rate savings bonds not premium bonds. They are a completely different thing.

alrightfatbloke

Juni wrote:

Those are fixed rate savings bonds not premium bonds. They are a completely different thing.

Right, just as well I asked the question on here first then isn't it, cheers.

Top of the page read's something along the lines of
"There’s no such thing as a stupid question, and even if you disagree courtesy helps."
We're not all money experts, as you can tell by my advice!!

Juni_3

alrightfatbloke wrote:

Right, just as well I asked the question on here first then isn't it, cheers.

Top of the page read's something along the lines of
"There’s no such thing as a stupid question, and even if you disagree courtesy helps."
We're not all money experts, as you can tell by my advice!!

There are a lot of people who do think that Premium Bonds provide a secure income (not helped with the wording on the website implying a 3% income).

Apologies if I sounded harsh. I tend to be quite short in my replies which can come over wrong sometimes.

As you can see from the 2nd post I get it wrong as well. I'm always forgetting about means tested pensions etc.

dunstonh

Also remind her that risk is not an on/off situation. Its a sliding scale into which the cost of living (inflation) has to be considered.

A 5% drop in the last 6 months (ignoring last few weeks) would suggest a medium risk investment rather than a cautious one. If you use a sliding scale of 1 to 10, she shouldnt jump from 6 where she probably is now to 1 but maybe move down the scale a little. Cut out the volatility but keep the potential returns higher than the bank account.

codetown

If you want a simple safe method to have a guaranteed income which matches and betters inflation, you will simply need to follow a bit the saving interest and keep options open and be prepared to switch savings provider every 6 months or so.
At present you can get very easily 5.3% gross or better.

This means that on 140k you will get: 7420 annually/12 = 618 pounds a month gross (ask the bank for interest being paid gross if she is not tax payer!)

This is with simple cash savings, no need to go with any bond, or share investment. And this can be done easily with Coventry First today!
There are also other savings options and many have risen recently, so just browse a bit at https://www.moneysupermarket.com or read this forum! If you tie the moeny for longer periods (such as required with Ruffler bank or others) then your return might be also much higher.

Not sure what the comments on this savings being wiped out by tax.
Of course, *any* income will generate tax above a certain threshold (besides some ISA investments), so I would certainly not be too worried about going the savings route!

dunstonh

codetown, i'm afraid i have to disagree with you on a number of points.

This means that on 140k you will get: 7420 annually/12 = 618 pounds a month gross (ask the bank for interest being paid gross if she is not tax payer!)

£7420 p.a. would make her a taxpayer as the personal allowance is £5035.

Not sure what the comments on this savings being wiped out by tax.

At age 60, she gets the state pension. That is paid gross but taxable. If she is on low income, she also gets pension credit. Quite a lot of pensioners do. This is a means tested benefit.

This increases the basic pension from £84.25 to £114.05 per week.

However, savings above £6000 are taken into account for means testing and every £500 above £6000 reduces the credit by £1pw. £140k in savings accounts would wipe out that £29.80 p.w. (£1549.60 a year).

Looking at this from age 60, the basic state pension virtually makes her a taxpayer as default. So, a crude calculation would be.

£140k @5% = £7,000 a year.
deduct 20% tax = - £1400
deduct loss of pension credit = £1549.

So that £7,000 interest income (5%) has £2949 to take off it. Making a net interest income of £4051. A return of only 2.89%

Ok, its not quite wiped out the interest but if you put inflation at 3%, then that wipes it out.

Of course, *any* income will generate tax above a certain threshold (besides some ISA investments), so I would certainly not be too worried about going the savings route!

A number of investments allow regular withdrawals from capital on them. It is a good way to reduce the tax liability. You can also see from above that she should be concerned about looking at savings accounts.

With certain investments not being included in the means test, it would make sense to utilise those.