Pensioner with savings needing income?

itsnotfair_2

Thanks everybody so far. It all sounds very complex.
The lady is a widow aged 63 and in very good health.
She asked me to help because she does not understnad these things but I am no expert.
We wondered about an ISA now and another in April. Maybe bonds from different banks.
We though she could keep enough back in a current account to pay here rent for say 2 years and invest the rest.
I assumed she would pay tax on the interest.
But when the guy at the bank asked her how she would feel if she lost money after 5 years she obviuosly did not want that.

baldbloke_2

dunstonh wrote: »

The costs of not getting it right can far exceed the costs of getting it right.

Income is a pain as there is no easy option that can do everything you want. Its a case of compromise and an acceptance of risks regardless of option chosen.

One can not overstate the difficulty of getting this decision right. The Holy Grail - A successful ability to combine the certainty of lowish returns from savings with the uncertainty of potentially higher returns from investments.

To a person such as yourself who works daily with investments the genuine fear of a sudden loss of some capital as opposed to the resigned acceptance of the gentle drip-drip effect of inflation must be baffling and frustrating.
One can attempt to counter inflation at various stages of a savings strategy - come back NS&I when you're needed most! - but to see Bonds or Gilts funds described as a potential 'bubble' in some parts of the financial pages makes me shudder. Once reduced that part of one's capital may be lost forever.

Many solutions seem designed for the wealthy or gamblers - not for the masses.

baldbloke_2

itsnotfair wrote: »

But when the guy at the bank asked her how she would feel if she lost money after 5 years she obviuosly did not want that.

Have they no shame?!

63 is much younger than I had thought. I fully accept that with that number of years ahead of her it would be best to seek advice. But not from your bank! Please, not from your bank.

They are presumably recommending their own funds for investment.

dawyldthing

if its money just for her rent she needs why doesn't she invest in a long term:

http://www.moneysavingexpert.com/savings/savings-accounts-best-interest

the best one is leaving it in for 5 years at 4.5% interest. Often you can get your money monthly, so she would get £4500 in interest every year or £86 per week, so enough to pay for her rent but there wouldn't be any left over for the rest, which i think is the safest option as your money is still there in the long run, but its not easy access

dunstonh

The lady is a widow aged 63 and in very good health.

So, she is still young enough to have inflation as a concern.

We wondered about an ISA now and another in April. Maybe bonds from different banks.

All of which will be eroded by inflation.

We though she could keep enough back in a current account to pay here rent for say 2 years and invest the rest.

When you say invest, do you mean investments or savings?

The use of capital to pay bills certainly is one way of doing it but it just highlights the issues of eroding capital to live.

But when the guy at the bank asked her how she would feel if she lost money after 5 years she obviuosly did not want that.

She is going to lose money with cash deposits. She is going to be at risk with every option. She needs to understand that EVERY option has risk.

The bank is not a good place to get advice. You are just looking at low skilled sales reps selling a limited range of products. They are paid based on sales. Not advice. She should see an IFA. However, she needs to be prepared for some risk. Indeed, even things like immediate vesting personal pensions (you can get around 9% p.a. on those right now). There is not likely to be one solution that fits what she needs. Its likely to be a few things that are best, including some cash based and some investments.

The fact is that if she goes with cash and draws the interest then she is guaranteeing a capital loss in real terms.

Loughton_Monkey

At the end of the day, there just is no 'magic' solution. Any form of savings (currently and forseeable near future) superficially do the job but will not keep up with inflation, and therefore the value of the money erodes slowly over time.

Any form of investment might produce a higher return in the long run. But the 'price' she will pay is quite a substantial risk. At worst this would involve significant loss of capital [and never forget 25% loss in share values means that you need 33% growth to get back to square 1], and at best it would provide 'volatility' [Some years very good. Some years very bad].

She can, of course, 'mix' the two types of solution.