Advice for relatives

Herbie_Hancock_I_wish

I was telling my uncle about MSE and he asked me if I could post.

He and my Aunt are coming up for retirement. They will be mortgage free and will get, with serps about £270 a week from the state. A further, approx, £120 from work and private pensions.

Now the question is, what is the best thing to do with their savings which stand at about £130,000? So little interest at the moment and they would like to see an income of about £27,000 a year in total. The state and work and private pensions add up to around £20,000 ( if I calculate correctly ) so a further £7,000 is required.

If IRs were around 6 or 7 per cent ( historically low ) then that could be drawn on.

So do they eat into capital ? Or perhaps put away £30,000 in savings and convert the balance to an annuity of some sort? Any ideas please?

dunstonh

So do they eat into capital ? Or perhaps put away £30,000 in savings and convert the balance to an annuity of some sort? Any ideas please?

The obvious one missing from your list is investments.

Cash is a risk and guaranteed erosion in real terms (suffering shortfall risk and inflation risk). Investments have investment risk but have a greater chance of meeting objectives.

There are many variables and options but a high yielding portfolio in line with their risk profile and using their full ISA allowances each year could be done. As well as putting money into a pension each year for a few years (net effective return is typically around 9% p.a. ignoring interim growth). Purchase life annuities are an option but may not be the best option.

Loughton_Monkey

I have the same issue of trying to boost my income from savings. Times are hard, now, and you have to work at it. Given that I don't want to tie up most of it for very long, I find that the best I can get is around 3.25%. I get this through a combination of 2 year bonds, 1 year bonds, 6 month notice accounts etc.

Then, I employ about £20K to get 4% or more. This is a combination of maxing out on Regular Saver (5%), Lloyds Depostit account (4% on £7k), Santander Current Account (5% on £2.5K) etc. You need to be continually "shovelling" money through these accounts on the Internet.

So sounds like getting £7K per annum from £130K (5.4%) might be stretching it. Throwing it into an annuity (Joint Life - two 65 year olds) might just about get this, but once done, it's done! But this could be too inflexible, and wouldn't provide for a rainy day. If investment rates improved greatly, they would receive no benefit from them.

I have generally achieved over 6% on Shares ISA's, but of course this is risky - and should only be used on a small proportion of such savings. So perhaps (like me) they need to "wheel and deal" on the myriad of savings, to earn as big a crust as they can, while waiting for interest rates to return to something more respectable.

Perversely, although retired and drawing pensions myself, I always bang in the maximum £2,880 Stakeholder Pension contribution for me and my wife. This is money for old rope! The Government instantly adds 25% so between us there's £3,600 going in. So in 5 years, it has only cost us £14,240 each, but each 'pot' is worth £20K today. Best investment I have ever made. Some say this is silly, because we can only get the money out "on the drip". But retirees like myself spend ages trying to manage money to "last" us through the rest of our lives. And there is one product that does this perfectly.. er... a pension! Your Aunt & Uncle should consider this. They can contribute right up to age 75, and with the £720 government contribution, each, plus that tax efficient growth and the low charges on Stakeholders, they could get massive extra incomes at age 75.