£400K What is realistic Income?

Sam_Malone

Any replies appreciated.

I am about to inherit £400,000.

I have no debts, own my house and live alone.

I am 49 years old and am employed and have a pension.

I will be seeing a IFA for advice.

I would like to invest the money and take a monthly income from it.

What (in your opinion) would you expect to be a realistic return per month or annum without reducing the capital.

I would like to compare any answers here with what the IFA will say.

I do not wish to risk the capital, but I have no need for it for at least 10 years.

Thanks

Lokolo

Are you looking at increasing income with inflation?

Sam_Malone

Lokolo wrote: »

Are you looking at increasing income with inflation?

Ideally yes,

but I don't want the capital to reduce.

jimjames

Sam_Malone wrote: »

Ideally yes,

but I don't want the capital to reduce.

The absolute amount will not drop in a savings account but will be eroded by inflation. It may be worth considering whether a part of the money could be used to get higher income but with some risk to capital.

CLAPTON

if you want to preserve the purchasing power of your capital then ordinary saving a/cs can be ruled out (except for money you need for short term spending) as the post tax income is below inflation.

so that leaves
-index linked bonds of various sorts
-stocks and shares
however these add risk to your capital
-property to let out but only if you want to be a landlord.

Glen_Clark

Sam_Malone wrote: »

I do not wish to risk the capital

You cannot avoid risking the capital.
Even in a rock solid bank (if there is such a thing) your capital is at risk from inflation.

Sam_Malone

Thanks for replies

I dont want to be landlord,

I want to take an income each month from this money.

Is 5% achievable and realistic?

or am I being too optomistic

I suppose the question I would like to know is how much more than bank/bs savings accounts could this money earn if invested through a decent IFA?

GeorgeHowell

Without taking risk with the capital in absolute terms (ie ignoring attrition due to inflation) even 5% before tax is unrealistic, let alone after tax. Avoiding capital risky routes (shares etc) completely probably an average of about 3.5% gross is a realistic aim. And don't forget to put no more than £85,000 in any one institution or risking the capital comes into play again.

jamesd

Sam_Malone wrote: »

I am about to inherit £400,000. ... I would like to invest the money and take a monthly income from it. ... What (in your opinion) would you expect to be a realistic return per month or annum without reducing the capital. ... I do not wish to risk the capital, but I have no need for it for at least 10 years.

Between 0% and 1% of the capital amount if you take no risk including not allowing the real after inflation value to drop. So perhaps £4,000 a year.

To get a decent income from it you must use investments that have capital value ups and downs. Do that and between 4% and 6% plus inflation is doable, so £16,000 to £24,000. Given your age, £16,000 is the better one to use. This is with perhaps 20% up and down variation a year from a broad mixture of investments.

5% is only achievable using investments, not savings accounts. Using investments and accepting 20% up and down variation in capital 5% isn't unreasonable but you may have to adjust you income ever five years or so if the investments don't on average match inflation.

You'd also want to put at least a year's worth of the income into a savings account to act as a smoothing buffer. Investment income paid into this whenever it's paid, your regular monthly income paid out of it.

Invested with an IFA and "20% maximum drawdown" target about four to six times as much income from investments as from using savings accounts, more or less, depending on the gap between inflation and savings account interest rates.

The income levels above are before tax.

You're quite close to age 55 at which you a can start to take income from a pension and doing that will be one good way to increase the income level, assuming you don't mind having some of the capital inaccessible inside a pension. If you really need all of the capital available then you can't do this. If you don't need the full capital available then contributing 100% of your taxable income to a pension, up to a maximum of £50,000 a year across all pensions, is likely to be a good idea to allow an increase in your income. Assuming that your objective is to maximise your income level.

Without knowing just whether the constraint is not dropping the capital value or being able to spend it all as a lump sum it's not possible to know just what might be doable with it.

innovate

OP didn't mention whether they are basic or higher rate tax payer. One consideration should be whether the additional income will move the OP into a higher tax bracket.

So as much as possible should go into tax-free vehicles - - cash ISA and/or S&S ISA to start with. Keep an eye on whether NS&I comes up with any tax free savers again (not v likely anytime soon).

Another way to save tax could be a SIPP - it would obviously only provide a monthly income sometime in the future, but it might be the sensible thing to do from a tax point of view.

If you are a bit of a gambler, OP, you could consider £30K in Premium Bonds - it's miserable average interest of approx 1.5%, so way below inflation. But it is tax free miserable interest, so it may save you from a tax rate hike, and you also might get lucky.

Glen_Clark

jamesd wrote: »

Between 0% and 1% of the capital amount if you take no risk including not allowing the real after inflation value to drop. So perhaps £4,000 a year.

Where can you get that?