Investments to provide £1200pm income?

gadgetmind

philng wrote: »

Would like to leave the daily rat race as soon as we can but not sure what we could expect to be able to get a return on our savings/investments?

You really need to put a spreadsheet together. Model every year between now and state pensions kicking in, and maybe even a bit longer.

I have such a spreadsheet and I have used the following assumptions.

S&S growth PA = 6.25% (7% minus fees)
CPI = 3.5% (used to escalate all HMRC tax bands, etc.)
Inflation = 4.25% (used for spending power calcs)
Investment drawdown. I have two figures, one of 5.3%, which I see as unsustainable and capital eating, and one of 4%, which should be long term sustainable.

I have then modelling the income myself and wife will get from various sources, the tax on this money, the future spending power, and from that have an annual income at age 55 figure. I'm planning to use the unsustainable draw of 5.3% for 11 years and then switch to 4% when full state pensions kick in.

(BTW, make sure you both get full state pensions - it's not hard or expensive, particularly if you go the class 2 route.)

In your case, if you assume £400k with a 6% annual drawdown, you can get £24k pa. However, you have many years to go, and the old stock market ebbs and flows, so there will be risk.

Have you played with firecalc? It's a US site, and uses dollars and the US stock market, but it's still be useful. You tell it size of pot and what you want to draw, and it then tells you the probability of the pot lasting certain duration based on previous decades of stock market performance. You really need to use advanced mode as this lets you drop in future pension income.

kidmugsy

If you add the £30k tax-free redundancy money to the apparently non-tax-sheltered savings & investments, you get £240k. Even if you earnt no income on it, you could spend more than £20k p.a. of capital until you are 60 and can start your pension. (That allows for starting payments from your presumed £45k SIPP at age 65 and your wife starting her pensions at 60). But you will get income from the capital, leaving you with the spare capacity to take steps to protect your capital from inflation. .. this scheme doesn't even call on any of the capital or income in your ISAs.

gadgetmind

kidmugsy wrote: »

apparently non-tax-sheltered savings & investments

While it's always better to hold investments in ISAs, the annual ISA limits do mean that this isn't always possible if you have uneven income. Fortunately, you can keep on using your CGT and ISA allowances to "Bed and ISA" over the years until pensions kick in.

Regular income is harder. I'm planning to use my wife's personal allowance to ensure the interest on our "rainy day" money is tax free, which means all other income has to be in the form of dividends. I plan to use direct share holdings, Investment Trusts and perhaps some funds AS LONG AS they pay out as dividend distribution rather than income.

I haven't found a good way to easy filter high-income funds based on this (pretty critical!) requirement.

philng

Thanks to all your informative replies. The £1200pm is current bills council tax etc & food but the other figure of £2000 to £2500pm allows for other everyday spends and plenty of holidays.

Vortigern

Loughton_Monkey wrote: »

...because next tax year (when you get the lump sum) you would not have enough income to qualify for tax relief.

I'm not 100% sure but I think redundancy pay counts as earned income for the tax year in which it's taken, so could all be routed to pension as long as no other limits apply. I know someone who did this a few years back, but check current rules with HMRC before basing your plans on this.

jamesd

Yes, it does.

gadgetmind

Vortigern wrote: »

could all be routed to pension as long as no other limits apply

Said limits involve carry forwards, and pension input periods, and are thus as complex as anything could be.

It's taken me ages to get a spreadsheet to model this properly and I straight away discovered my accountant had screwed up a previous return.

The £370 tax refund was eaten up by two new tyres at an MOT last week. Easy come, easy go.

kidmugsy

Buy a bike.

gadgetmind

As it happens, the first time I drove a car during July was the day before the MOT, so 20 days just walking and cycling. I do about 8k miles a year by car, but it's all long motorway trips as all the piddling sub 10-15 mile stuff around town is on two wheels.

philng

I originally set up this thread just over 18 months ago. I have been lucky with my share investments particularly a large holding in LTSB meaning our portfolio value has increased from £360K to £480K of which £155k is LTSB shares obviously paying currently no dividends.
I am aged 48 & wife 54 & have a guaranteed final salary pension at age 60 currently worth approx £19k per year. Wife has a number of money purchase pensions valued approx £60000 in value PLUS an old final salary pension approx £6k pa index linked.
We are due to receive another approx £40k inheritance this year.
Cant help thinking why we are working so hard and long hours and not enjoying ourself.
How much income could I realistically obtain from the above with some protection against inflation? Bearing in mind I will receive the above final salary pension in just 12 years at age 60.