Using nest-egg to generate extra income

arthurfarrow

I am 55, and have just taken ARP from Teachers' Pensions. Due to a back injury, I am not optimistic about obtaining further work of any sort, as I have been unemployed now for over two years.

I have savings which I would like to use to generate extra income, but without exposing it to risk on the stock market. I have humped my cash around the high street banks and building societies, but so far, none of them has shown any interest.

Any ideas?

ermine

arthurfarrow wrote: »

I have savings which I would like to use to generate extra income, but without exposing it to risk on the stock market.

Wouldn't we all like that option! Lots of return, with no risk, please . Sadly at the moment you're unlikely to earn a return that beats inflation without exposing it to risk on the stock market, that's why the risk premium is there.

You can investigate an annuity, but rates are poor at the moment and your young (for an annuity) age doesn't help you, and a back injury is unlikely to give you an expected impaired lifespan which can help with an annuity.

Having said all that bear in mind you have the State pension coming at 66 (or 65 possibly, you'd have to check) giving you a boost of 4-5k depending on your tax position, so you could take the line that it might be reasonable to run some of your capital down over the next 10 years which would improve your disposable income over those years

Now if you were prepared to tackle the stock market, income would be easier to come by, and the income from stoc market investments is less volatile than the capital value.

jamesd

It's easy to do this without using the stock market, though some use of stock market investments as part of the mixture would be a good idea.

No stock market involvement at all from the 8% regular saver account from First Direct that takes up to £300 a month for a year. Open a normal savings account with them as well to avoid any charges for the current account. You don t need to switch your current account to them, just open one.

One option that has only about 15% in the stock market is the Invesco Perpetual Monthly Income Plus fund. It's currently paying out a bit under 7% a year in unequal monthly payments of interest. The interest is tax free if you hold this in a stocks and shares ISA. The capital value will vary by perhaps 10-20% as the values of the bonds it holds and the small share portion varies. This is up and down and the long term trend will probably be slowly upwards.

With mostly stock market involvement but not excessive up and down movements is Newton Higher Income, currently paying out 6.8% with no extra tax to pay in a S&S ISA. Not tax free interest like the Invesco Perpetual fund, though, so would only go into an ISA after all of that that you want to use is in there.

Here's a list of investments suitable for S&S ISA use sorted by yield. Yield can be interest, dividends or both. Don't automatically pick the highest yield, the capital value variations differ, these aren't savings accounts.

Marlborough High Yield Fixed Interest is currently paying out at 10.4% tax free in a S&S ISA and has no share involvement but you probably wouldn't want to use much of it because in a bad time the capital value could drop by 45% or so.

Use caution with high risk investments like Zopa. There's no FSCS protection and your capital is at risk so it's only suitable for 5% maximum, if even that much, given your risk objective.

An annuity seems out because that costs you all of the capital that you use to buy it.

The high street banks and building societies are the wrong place for this. It's IFA territory and unbiased.co.uk is the place to go to find one. Assuming you have say £50k or more, it'll be uneconomic in many parts of the country if you have much less than that.

You can also make contributions of £3,600 a year gross into a personal pension. You could take out the lump sum and a small drawdown income from the rest after a few years. You need perhaps £10,000 before it's cost-effective to take income in this way so accumulating for a few years would be needed. You still just have time to use what's left of your £50,000 or salary annual allowance to pay in more this year, though. The tax relief ends up boosting the taxable income by 25% and you get the tax free lump sum out of it.

atush

I agree, without ANY risk at all, you will be stuck with deposit accts. but those are anot risk free, as you have inflation risk in that you will earn less than inflation so the actual buying pwer value of your 100K will be dropping each year.

I would highly rec exposing at a bare minimum some 10-30% of your 100K to equtiy income funds hopefully thru ISAs (you can invest over 20K if you use this and next years ISAs either side of April 6).