Do I need an IFA?

gadgetmind

Neverland wrote: »

I don't think its even worth you taking any investment risk with the lump sum lets face it - that is your safety net

That depends. It could be argued that roughly £30k of this lump sum isn't required for the 10-12 years until retirement, and that perhaps £22k of this could be invested into S&S ISAs. A sensible portfolio (which I'd argue at this stage would not be all high income) should yield around 4% above inflation over a period such as this.

Of course, there is some risk, but there is also a lot of potential upside, far more than with the premium bonds that were suggested.

There are also good arguments for slowly moving spare cash into both cash ISAs (if allowance not used for S&S) and NS&I bonds (when available) as they will be above their personal allowances when SP kicks in.

soperman

As a practising IFA and owner of an online retirement modelling company, I could not argue with any of the excellent comments and tips given above. You certainly seem savvy enough not to need an IFA on an ongoing basis but you may want to take some advice and explore your husband's final salary pension scheme in more detail before taking full cash commutation. Specifically, check the historic levels of increase the Scheme has awarded to its existing pensioners as you may find that the Trustees have awarded discretionary in addition to mandatory increases.

In terms of advice, check if your husband is eligible for any free or discounted financial advice from his employer regarding his retirement options.

Pubications - I am a huge fan of Investors Chronicle and also subscribe to the excellent FT Money Management magazine although this is a bit pricey now so get it from your local Library.

Finally, don't worry,be happy and enjoy your retirement.

jamesd

Neverland wrote: »

I don't think its even worth you taking any investment risk with the lump sum lets face it - that is your safety net ... If you each got a 3 and 5 certificate that would protect £60k from inflation

Just protecting from inflation is not the problem here. They need an income from this money and the NS&I option will not provide both income and protection from inflation. If they aren't generating the income then they lose the capital anyway, because they have to spend it to live on.

Neverland wrote: »

Forget the IFA and spread the money between the two of you in a combination of term deposits, notice accounts and some in an instant access account for emergencies

Those choices are inappropriate for most of their need, which is income, because they do not provide income at a level above inflation, so the net effect is loss of capital as they are forced to spend the capital.

Neverland wrote: »

ISAs aren't really worth it because you will both be below your personal allowances on the income side

Investments within ISAs are worth it because there is less CGT and income tracking required within an ISA than outside an ISA, regardless of what investments are used. It also avoids the need to pay tax on interest, then reclaim it from HMRC.

Your suggestions to avoid investment ups and downs actually guarantee a loss of capital, rather than just ups and downs. That can be appropriate for people who have a large excess of capital and who are very risk-averse but those conditions don't apply here.

chris1

gadgetmind wrote: »

Have you modeled the next 10-12 years in a spreadsheet as a cash flow forecast? If not, I'm happy to give some advice (or even lash up a crude first pass!) but there are also plenty of cash flow tutorials around.

If you try and do this and really struggle, then you might need some help, but TBH I've never experienced an IFA getting into this level of detail anyway.

Excuse me for muscling in , but I would be interested in this please, I expect others might be too...

gadgetmind

jamesd wrote: »

They need an income from this money

I'm not at all sure they do. They ideally don't want to lose spending power, but the plan is very much to live off their capital until they have all sources of index linked pensions coming in.

This capital that they absolutely need to be there to drawn needs as much inflation protection as can be provided as long as there is zero risk to the capital.

Any "excess" capital could go into slightly higher risk investments to hopefully provide some upside later on.

atush

I agree with soperman as if the pesnion is defined benefit, they really ought to take a higher pension over a higher lump sum. AS their spending is so much more than the proposed pension.

jamesd

It's unlikely to be good to take more than the minimum income from a defined benefit pension but we don't know the commutation rate and there's always the chance that this one has a good rate.

The potential value of a larger than minimum lump sum is to be able to spend the capital over time until the state pensions start. That would reduce long term income after the state pensions start but until then it would allow a more level income.

Muppet81

Wow! Just got in and seen all the fantastic replies and advice. Got to go out tonight but will sit down in the morning and go through everything you have all said. Will then respond where appropriate.

Please bear with me and pop back tomorrow to see my replies to the questions some of you have raised.

Your help is much appreciated. :A

Muppet81

jamesd wrote: »

Is this a final salary or other defined benefit pension? If yes, what is the commutation rate - how much lump sum you get for each Pound of given up income. Is it inflation-linked or increasing in any other way?


Is your mortgage at an interest rate of say 8-9%? If it's lower than that it's likely to make you worse off to take that £20,000 worth of lump sum because you''ll probably be losing income at an effective rate at least that high, perhaps as high as 12%.

Both our pensions are final salary pension
They are both index linked
The commutation rate is 1;12

Our mortage is at 2.5%

Our initial way of thinking was to reduce our monthly outgoings by paying off the mortgage. I do see what several of you are saying and that we would probably be better hanging on to the £20k

Having done more thinking today, I have come up with the following idea:-

We had intended paying off the £20k mortgage which has just under 6 years to run
In 2 or 3 years we intend to change our car and would be doing that with a loan.
It would make more sense to perhaps pay £10k off the mortgage, leave the other £10k in a fixed term savings account then use that to buy a car outright in 2 0r 3 years.
That would mean we would pay the mortgage off 3 years 3 mths early and save £2229.00 in interest (according to a calculator I used)
We would have a car we own outright
We would off course have to carry on making mortgage payments for 2 years 7 months but as I had, in my piggybank accounting system, allowed £190.00 per month to accrue towards a deposit on the replacement car, this could be used toward the mortgage payment.

I am beginning to see that we need to think differently about our finances now. I tend to think of 1 month at a time and making ends meet. We are now looking at a capital pot which we intend to live off whilst we need to and which we need to manage carefully and avoid paying any avoidable fees/tax.

Muppet81

soperman wrote: »

As a practising IFA and owner of an online retirement modelling company, I could not argue with any of the excellent comments and tips given above. You certainly seem savvy enough not to need an IFA on an ongoing basis but you may want to take some advice and explore your husband's final salary pension scheme in more detail before taking full cash commutation. Specifically, check the historic levels of increase the Scheme has awarded to its existing pensioners as you may find that the Trustees have awarded discretionary in addition to mandatory increases.

In terms of advice, check if your husband is eligible for any free or discounted financial advice from his employer regarding his retirement options.

Pubications - I am a huge fan of Investors Chronicle and also subscribe to the excellent FT Money Management magazine although this is a bit pricey now so get it from your local Library.

Finally, don't worry,be happy and enjoy your retirement.

Thank you!

It is really good to know that a practising IFA does not think we are heading in the right direction.

Will pop to library and try to track down the FT Money Management magazine.