Early Retirement and income

Krackerjack

I may unfortunately be in the position of having to retire at age 52 on grounds of ill health. I won't bore you with the details of how and why but I will ask for some advice on how to maximise my monthly income through investment of a lump sum.
If all goes well in terms of the pension board payout I should receive a lump sum of around £130k and an annual pension of around £20k.

I intend to pay of our mortgage, no ifs or buts, that is happening I am a firm believer in these circumstances of having a bought and paid for roof over our heads. Likewise we have a car loan which will be cleared. This will leave us completely debt free :T.
After these deductions from the lump sum I would reckon we will have around £70-80k to invest, however, taking a drop onto effectively half wages, even after balancing the income/outcome difference, will leave us a bit short on real income. Sure we can make other savings by cutting back on what we eat/drink/holiday/heat etc, etc but equally, why should we?

So in short can anyone advise on what we can do with this £70-80k to maximise a monthly income that may go someway to taking our income someway nearer where we were pre retirement?

TIA.

Krackerjack

CLAPTON

you seem to be asking can 70k generate 20k in earning (i.e to restore you to the 40k you were earning before?)

the answer is absolutely no

firstly work out what your were actually earning and what you net income was and what your pension will provide

i.e you will not long pay NI or contribute to your pension)

secondly your outgoings will be less; i.e. you no long pay any mortgage and travel to work is presumably less

so how much do you really need to live on?

then think about investing the money;

what are you family circumstances ; partner children etc?
but basically assuming you have a reasonable life expectancy then INFLATION is your enemy; at 3% per year the purchasing power of 70k will be reduced to 51,000
in 20 years to 38,000
in 30 years to 28,000

if you take 5% inflation the equivalent figures are
41,000, 25,000, 15,000

at the moment there are virtually no saving schemes that return a positive amoutn after inflation


realistically think about a return of 1% net of inflation for your 70k i.e. 700 per annum

Pollycat

I think you are just going to have to accept that you will not have as much monney coming in as when you were working.
You ask why you should have to make other savings by cutting back on what we eat/drink/holiday/heat etc, etc - but that's the reality you have to face.

As Clapton says, your outgoings - on tax, pension contributions, NI - will be much less.

Also car expenses (assuming you drive to work), spends at work - lunches, coffees etc.

Have you really factored all this in?
Maybe concentrate on how much you actually need to live and enjoy life on?

When I retired (early at 50), I found I wasn't that much worse off.

You can spend time batch-cooking, maybe growing your own vegetables, making your own wine.

Holidays - assuming your partner doesn't work, you can take advantage of last minute offers.
We've had some cracking deals.

Krackerjack

Hi Clapton, No, No and No, I'm nowhere near naive enough to expect a £20k income from a £70-80k investment,:eek:, is there anyone who would even under the best of financial climates? In any case we simply don't need that kind of income to ofsett the deficit of income once I have paid the mortgage car loan etc off. Not having those payment going out make a significant contribution to leveling the actual requred income.

All I am really looking for is a straight forward; how do I maximise my income from a £70-80k investment, all routes considered.

As you suggest, yes I have done the simple arithmetic i.e. current outgoings less mortage repayments, car loan repayments and a notional figure for fuel savings for traveling back and forth to work the actual gap is significantly less than £20k if you follow that logic. By my very rough calculations I would only need to make in the order of 3-4k per annum, circa £300 per month to offset the income deficit and maintain a lifestyle roughly equivalent to what we have. We are far from extravagant in our expenditure.

I am sure that there are ways of getting a better return that 1% on £70k, I'm already getting that return on my savings accounts, surely ISA's, annuities etc would provide way better than 1%.

As you say Pollycat I do have to accept that my actual income will be less but as you have said I have looked at what I need to live on comfortably, factoring in the fact that most of our current heavy outgoings will be clawed back by clearing that debt. For me the only concern is that our energy bills are likely to increase due to me being at home most of the time but that has been factored in my calculations.

I hope that makes it a bit clearer in terms of the real question being asked.

Thanks.

Krackerjack

le_loup

Make a start by going to the savings and investment board. If you're getting 1% at the moment, you have a lot of work to do to catch up with what you could earn.

CLAPTON

sorry you haven't read my post correctly

1% return AFTER INFLATION (currently running at 3.6%)
so that means net of 4.6% or 5.75% gross if taxed at 20%.

I think you will find that ISAs, annunities (if you are willing to lose control of your capital) or conventional savings will NOT easily meet that requirement

have alook round and see what safe palce you can get 5.75%pa

Pollycat

le_loup wrote: »

Make a start by going to the savings and investment board. If you're getting 1% at the moment, you have a lot of work to do to catch up with what you could earn.

That's a good suggestion, although you are limited to how much you can put into your cash ISA each year.

You could consider putting some into a fixed rate bond for a fixed term, but do be aware that you probably wouldn't be able to get at the money until the end of the term.
My Mum & Dad had a 2 year bond and even though Dad was diagnosed with Dementia and had to go into a care home, they wouldn't release the money.

You can get over 3% easily on savings accounts.
I guess you'd maybe want monthly interest to supplement your pension, there's not so many of them.

Be aware that you might be getting a 'bonus' rate which will drop at the end of the offer period so you will have to be ready to move your money.

Krackerjack

CLAPTON wrote: »

sorry you haven't read my post correctly

1% return AFTER INFLATION (currently running at 3.6%)
so that means net of 4.6% or 5.75% gross if taxed at 20%.

I think you will find that ISAs, annunities (if you are willing to lose control of your capital) or conventional savings will NOT easily meet that requirement

have alook round and see what safe palce you can get 5.75%pa

I'm not convinced you have read mine correctly either though, not if you thought I was expecting to gain an income of £20k from a £70-80k investment.

Although no financial guru, as is probably apparent lol, I know that the financial world is in turmoil at the moment and retiring at this time is not ideal however, serious health issues make it virtually impossible for me to hold down my job and perform to my full potential, a fact that I cannot live with and in time neither will mt company want to live with that.

I am fortunate enough that my pension scheme is index linked so one would at least hope that the guaranteed 1/2 salary portion will keep up with inflation.

As I have said, we are looking for something that will provide us with a monthy top up from the lump sum, annuities, well I just don't know enough about how they work to say yay or nay, as you say Clapton, I do understand that I would lose control and access to my lump sum, the question is is that a concern to me? Well perhaps not, once the major outgoings are dealt with, (mortage etc), I see no real need to have immediate access to a lump sum, the monthly income is the ruling factor.

So the original question remains, what would be the maximum income, (preferably monthly), that could be made from the £70-80k, for our circumstances after all considerations around £300 per month would do the job, in simple terms are there any feasable options that would fit the bill? My basic understanding is that I'd be looking for around 5% on £70k to provide £3500p/a

Thanks again everyone for your input, as I say, please bear with me as I am certainly no financial whizz but know a few basics, (that is basic basics :rotfl:)

Krackerjack.

atush

you keep saying 'our' and 'we' so I assume you have a partner? Who isn't retireing early due to ill health? Surely they can be earning, at least part time?

You also dont' mention what other savings and investments you had or have. With 2 adutls working I am sure you must have had some cash savings, ISAs etc? Do you have 30 years NI contribs?

I agree with Clapton, if you are going to get any sort of income to beat inflation, not to mention show actual growth in come, you are going to have to consider equities for part of your pot- maybe half?

So, 10K easy access (fill your ISAs?) 10 K on longer term bonds 1 yr, 2 yr, 3yr. then 40K in equity income funds.

Krackerjack

atush wrote: »

you keep saying 'our' and 'we' so I assume you have a partner? Who isn't retireing early due to ill health? Surely they can be earning, at least part time?

You also dont' mention what other savings and investments you had or have. With 2 adutls working I am sure you must have had some cash savings, ISAs etc? Do you have 30 years NI contribs?

I agree with Clapton, if you are going to get any sort of income to beat inflation, not to mention show actual growth in come, you are going to have to consider equities for part of your pot- maybe half?

So, 10K easy access (fill your ISAs?) 10 K on longer term bonds 1 yr, 2 yr, 3yr. then 40K in equity income funds.

Yup, 'our' and 'we' are indeed reflective of my marital status. My wife is working full time but unfortunately in the high street retail trade, notorious for poor pay and in any case her wages are included in all my calculations so doesn't really change the equation of the income we need. Also having twin daughters who have both been through University has left the savings as really pennies in the bottom of the pot.

I am in our company's share shave scheme but being Eurozone owned the shares I am purchasing via this scheme are about to crash and burn. I might break even with this as the employers match half the shares we purchase with free shares.

I've been making NI contributions from the day I started working 35 years ago but will not be able to access the state pension until age 66, some 14 years hence. Unfortunately there is a reality that I may not get to that age, the conditions I have are life limiting so that is another factor determining the, 'get out now and enjoy some free life while I can' attuitude I may be portraying here.

You have all given me much food for thought though and I thank you for that.

Regards,

Krackerjack

CLAPTON

so you have decided to ignore inflation; ok that's your choice.
5% after tax is impossible unless you simply spend part of your 70k each year
in effect you are doing that anyone as the spending power of the money will fall year in year out

maybe you should simply consider the years to getting a state pension i.e. 14 years and divide 70k by 14 = 5,000 and consider any interest as a bonus.

otherwise you need to consider S&S; the ft100 index is paying about 3% at the moment and offers hope that it may keep pace with inflation