How much of savings should be in cash....?

nearlyretired2004

Apologies in advance for the lengthy post!

Some of you may have some idea of my background from my previous posts ……. From‘nearlyretired2004’ I am now fully retired (at 56 years old. )

I find myself in the fortunate position (touching wood all the time ..!!) of having circa £250,000 in ‘savings’, house valued at circa £260,000 with an £80,000 mortgage and no other debt. I also have a SIPP from which I’m receiving income, which currently stands at £61,000 (CoFunds via Legal and General). Savings include minor direct shareholdings of about £4,000

Income from my three pensions (two index linked..), plus savings interest is exceeding my expenditure by circa £700 per month, after tax -(will increase to about £750 per month in April when one pension gets an index- linked rise…) i.e. approx £8,400-£9,000per annum, plus annual ISA interest ofapprox £1,500 making around £10,00-£10,500 per annum - of which we blow about £4,000 per year on a Caribbean holiday!

My risk profile is fairly risk –averse.

Back in 2004 my decision to keep most of my money in ‘cash’ (mixture of cash ISA’s maxed out, instant access and fixed rates from 1-5 years) was based on a probable move abroad, but this has been put on indefinite hold due to the health of my elderly mother.

My question is simply - how much would the average MSE (or IFA who uses the site!) expect to be in other investments rather than cash given my situation and risk profile?

I am aware that none of my cash is invested for capital growth (other than in my SIPP …??)and wonder whether I’m ‘missing a trick’ now that I may not need access to most of the money at short notice.

I’ve not used any S&S ISA allowances to date, and wonder whether now may be the time to start.

As well as suggesting the proportion that might not be in cash, would appreciate any pointers to products that I should be looking at?

I would be very happy to post any more info, but think this is long enough for now!

Very grateful thanks for any replies!

(Dunstonh,Aegis etc are you out there ….!?!?!?!?)

Aegis

With a personalised shout out, how could I not post a response?

The answer isn't straightforward, as you can imagine. A lot of it depends on your ongoing circumstances and whether you anticipate any rises in expenditure. The £750 clearance is very nice to have, as it gives you quite a lot of room for adjustment and also for putting money aside into savings. That said, you mentioned that you splash out about £4k a year on holidays, which presumably isn't paid from monthly excess, so you have £9,000 excess each year and spend £4,000, leaving £5,000.

For a start, it might be worth starting to use the ISAs as gross roll-up accounts, i.e. leaving the interest in the account to let it grow further and not treating it as part of your annual income. That way the accounts are more likely to keep pace with inflation and your long-term tax efficient source of income has a chance to increase a lot faster.

Depending on the interest rate and penalties associated with it, it might be worth paying off your mortgage. That will free up extra income on a monthly basis and will leave you feeling a lot more secure if nothing else!

What you do with the remainder depends on what you want to achieve with the money. If you're looking to create a long term income supplement or want to spend it on moving abroad eventually though not within the next 5 years), it might be worth adopting a little risk with the portfolio to see if you can increase the value ahead of inflation. How much is then down to you, and the risk can come from a variety of different assets and geographies to try and minimise the risk as much as possible.

Broadly speaking it's normal to recommend retaining between 6 months and 2 years income in emergency cash plus whatever is required in the short term. However, that's very much secondary to what feels comfortable.

Nothing specific above, but maybe some things to ponder over.

nearlyretired2004

Thanks to Aegis for his reply and my replies to his quotes hereunder.
(As always would be very grateful for anybody elses responses as well!!)

Your para 2
'For a start, it might be worth starting to use the ISAs as gross roll-up accounts i.e. leaving the interest in the account to let it grow further'

I didn't make this clear but am already doing this - I just added it as 'income' to show how much my net 'worth' is increasing.

Your para 3
'Depending on the interest rate and penalties associated with it, it might be worth paying off your mortgage.'

Morgage currently costing £84000*.0259/12 = £174.30 per month.
My 'savings' at the LOWEST interest rate are at 3.1% - £84000*.031/12*0.8 = £173.60 per month (after tax)!
So at the moment think it worth foregoing 70p per month to keep the capital available - will obviously review if interest rates vary much

Your para 5
'Broadly speaking it's normal to recommend retaining between 6 months and 2 years income in emergency cash'

I think this is generally more applicable to people relying on their salary for income as a hedge against redundancy or similar, to allow for the length of time taken to find another job. In this respect I think my pensions are fairly 'safe'. Are there other reasons I'm missing?

Your para 4
'it might be worth adopting a little risk with the portfolio to see if you can increase the value ahead of inflation.'

I think this is the crux of the question I was trying to ask - If I'm prepared to take some risk, would starting to use my S&S ISA allowance be a good way to 'dip a toe in the water' and if so what would be the types of product I should be looking at?

(I fully realise you cant give advice on this forum, just asking if you can give any pointers to the TYPES of product I might be looking at, given that, initially at least, I would not have the knowledge to be actively doing much with it.)

Thanks once again for taking the time to reply !!

Linton

From a quick calculation it would seem that you dont actually need anything from your savings - you say you have an excess of £700/month which is roughly what you may be getting as interest from your savings. Although you do use half of the excess for your £4k annual holiday.

Is this correct?

If so for what purpose do you want to use your savings beyond that necessary for a £4k annual holiday?? A more extravagent lifestyle which needs income continually from now? A maximum inheritance for the (grand)kids, if any, in perhaps 35 years time? Only when we understand this can we becgin to make relevent suggestions.

The other factor to consider is inflation - how much of your pension income is inflation linked? Do you need to make provision for increasing income from your savings?

An appropriate savings/investment strategy is very dependent on what results you need from it.

Apologies if I have misunderstood your situation.