How to boost retirement income

gadgetmind

Something to maybe look at is the tax on the various income streams. For instance, my plans are to have everything that isn't in ISAs or pensions held as sources of dividend income (high yield shares in blue chips and investment trusts) in my wife's name because there is no further tax for a basic rate tax payer. By the time state pension kicks in, we should have been able to "Bed and ISA" the bulk of this, which means she should still get the larger personal allowance.

sleepless_saver

kidmugsy wrote: »

Each can also hold £15k On Trust for the other, so then they've reached £60k.

Interesting. How do you do that?

kidmugsy

I've never done it, but if I can find the old newspaper cutting that explains, I'll report it here.

sleepless_saver

Found the info about trusts on the NS&I site

jamesd

Long term the funds should really be picked so that their value could be stable or increasing but short term there's always some variation. Unfortunately the ones with the largest combination of capital growth and income are also usually the ones with the greatest short term variations in capital value. Income levels tend to be more stable. Here are some examples. First total return - a combination of both the capital value and the income:
Now just the capital part:
Red: Invesco Perpetual Income (around 3.8% yield)
Blue: Invesco Perpetual Distribution (around 5.9% yield)
Yellow: Invesco Perpetual Corporate Bond (around 4.9% yield)
Green: Newton Higher Income (around 7.1% yield)

As you can see the capital values of three of these are back to above where they were five years ago after the dips a couple of years ago. You can also see that you'd want some cash or similar if you want to get to an average capital value variation under 10%, but 15-30% can be done without much cash and at higher income level. Though you'd still want to keep a fair bit of cash or similar anyway.

The yields are their approximate past interest and dividend payouts. You'd use something like Invesco Perpetual Income for its good long term track record of capital value growth but with lower income level and the other types for most of the income part of the picture. That should give you a decent chance of an income that can rise with inflation.

For retirement income you don't actually need to keep the capital value steady. It's fine to slowly deplete it unless you want people to inherit the money.

gadgetmind

It's interesting to also plot something like Troy Trojan (or the PNL IT version) on the same graph, and to then throw in Trojan Income, and maybe some ITs such as City of London and Merchants Trust. It seems that all those designed to maximise income suffered more during the crash than the more cautious funds. I also know that the income ITs will have used reserves to continue to increase yields year on year, even during the bad times, but don't know how the income OEICs handled that.

The price of City of London dropped more during the crash than Invesco Perp, but the total return is better. This suggests that CTY has been a more reliable and/or greater source of income. The same seems to be true of Trojan Income versus Invesco though to a lesser extent.

My (evolving!) plan is to use a mixture of capital preservation funds/ITs for a few years, and to then slowly switch to income ITs/funds, ideally by buying on any big dips and/or discounts. Alongside, I am accumulating some (currently!) high yield shares, and also "racier" OEICs to get exposure to wider markets.

Iancfp

I know in an ideal world you would like your capital safe and a good income on top but in the investment world this is a bit of a holy grail - so watch out for structured products currently heavily sold by banks and building societies (because of the 10% profit margin). These can offer what appears to be capital security over 5 or 6 years and a high income like 7% but devil is in small print - they are illiquid and returns only guaranteed if markets perform and bank providing guarantee is solvent

A mixed portfolio of cash and funds in bonds, shares and property pref held in ISAs will be a much better bet although capital will fluctuate.

Note I am Chartered Financial Planner and award winning Independent Financial Adviser but I can only give advice to clients who have given me their financial details. Any comments given in open forum are my own thoughts and are designed merely to assist and do not constitute advice

gadgetmind

The extreme view taken by DIY yield seekers used to be that you shouldn't even bother looking at capital and/or chopping and changing your investments. The last decade has altered that view somewhat, which is partly why some ITs will be in my final mix, and some bonds and/or preference shares.

ermine

all those designed to maximise income suffered more during the crash than the more cautious funds

Doesn't this stand to reason, you don't get 'owt for nowt in this world? I loaded up on MRCH in my ISA last year when they were trading at a discount, and now the darned things are @ a premium when I wanted more. What I want for 2011 is a jolly good stock market crash in the second half of the year, perhaps brought on by the Greeks exiting stage left from the Euro, to get some more/similar ITs at a reasonable price, and a discount too, please!

gadgetmind

Yes, a lot of the ITs are currently at a premium, which is a turn off. However, PNL operate a pretty strict control mechanism so you can never go far wrong, but they don't attempt to generate yield.

I guess the asset mix people go for depends on attitude to risk and/or ability to tighten their belts during thin years. Income ITs are attractive as they use reserves to achieve this so people don't have to do it for themselves.