Retirement - making the most of savings

jimjames

unitedjmd wrote: »

I can see everyone's point around inflation eating away at the funds and that is probably something I hadn't fully considered.

Just seen this on the BBC that gives a pretty good indication of inflation for one product (bread) over 10 years.

10 years ago you could get 2 loaves for £1, now that won't even buy one.

Oct 2002 - 57p
Oct 2003 - 60p
Oct 2004 - 65p
Oct 2005 - 75p
Oct 2006 - 83p
Oct 2007 - 91p
Oct 2008 - £1.26
Oct 2009 - £1.21
Oct 2010 - £1.20
Oct 2011 - £1.19
Oct 2012 - £1.26

Admittedly this is for just one item but it gives a pretty graphic example of how purchasing power erodes over just 10 years.

BLB53

Where am I best going to read / investigate income equity funds or corporate bonds further?

I can recommend 'Slow & Steady Steps' (ebook) as an easy to follow guide to generating income from the stockmarket:

http://www.amazon.co.uk/Slow-Steady-Steps-Wealth-ebook/dp/B007EBLN3G/ref=sr_1_1?s=digital-text&ie=UTF8&qid=1355148870&sr=1-1

Also some useful articles on www.monevator.com

Also have a look at the discussion boards for hyp on www.fool.co.uk

Finally, a good article on Miserly Investor http://miserlyinvestor.com/high-yield-portfolio-a-strategy-for-life/

Good luck!

dunstonh

Which was my point that it is a bit late for that strategy. We are looking at £200,000. But of course every little helps

Pensions are heavily used by retired people. £3600 is not a lot but do it for 15 years (60 to 75) and it builds up. Do it is a couple, even more so. We dont know the age of the OP at the moment, just an objective to retire at 60/61. There could be some working years in there yet with up to 50/k/£40k pa. contributions possible.

I'd avoid IFAs until you have investigated your risk levels. An IFA is only going to ask the questions - you have to answer them - and possibly produce a spreadsheet model of your possible future life.

And recommend the investments to be used and potentially review, rebalance, bed&ISA, bed&pension etc going forward. If the OP can DIY on that as well then fair enough. However, if they cant, then an IFA is the next available option (just avoid FAs)

unitedjmd

dunstonh wrote: »

Pensions are heavily used by retired people. £3600 is not a lot but do it for 15 years (60 to 75) and it builds up. Do it is a couple, even more so. We dont know the age of the OP at the moment, just an objective to retire at 60/61. There could be some working years in there yet with up to 50/k/£40k pa. contributions possible.
)

The numbers I have quoted are the actual figures I should have available if I retire in circa 18 months if that helps. Basically there isn't going to be much movement between now and my actual retirement date.

srcandas

dunstonh wrote: »

And recommend the investments to be used and potentially review, rebalance, bed&ISA, bed&pension etc going forward. If the OP can DIY on that as well then fair enough. However, if they cant, then an IFA is the next available option (just avoid FAs)

No problem with that. When you have your plans in place and you lack the enthusiasm or knowledge to make good investment decisions yourself, or if you have complex tax and inheritance issues for example, then may be the time for an IFA.

Dunston the OP is a year away from retirement at 60/61 so he is 59/60. He could play the pension game being careful with the recycling law but it would still leave the bulk to play with.

:beer:

unitedjmd

srcandas wrote: »

Dunston the OP is a year away from retirement at 60/61 so he is 59/60. He could play the pension game being careful with the recycling law but it would still leave the bulk to play with.

:beer:

Recycling law?

dunstonh

Dunston the OP is a year away from retirement at 60/61 so he is 59/60. He could play the pension game being careful with the recycling law but it would still leave the bulk to play with.

Recylcling shouldnt be a problem if the audit trail shows the money coming from other assets. It certainly wouldnt be on a £3600 non-earner contribution. There may be scope for carry forward to be utilised as well as the annual allowance for the current working period.

P

srcandas

unitedjmd wrote: »

Recycling law?

This is a bit misunderstood as I discovered when I discussed it with HMRC this year.

You are not meant to take 25% tax free from a pension and then reinvest it in a different pension claiming further tax relief (on money that has already benefited from tax relief).

My position was that I took a 25% tax free lump sum from a pension fund and at the same time invested a similar amount (money from a totally different source) into a pension and thus benefited from further tax relief.

HMRC went out of their way to assure me this was not only ok but that the onus was not on me to prove innocence but on them to prove gilt. Also they stressed that the law was not targeted at people like myself - even though they agreed I was not breaking the law in any case.

:beer:

jamesd

First thing to do is start to exploit pension tax relief. While still working you can move savings into a pension up to the total amount of earned (PAYE type) income each tax year. There's a cap of £50,000 but you can go back three years of £50,000 a year more that you might not have used for pension contributions already if it's more than that which is needed. So do this for all your taxable pay.

Then when you take money out of the pension you can take out a 25% tax free lump sum and get back some of the capital, so that reduces the amount of capital you have tied up in the pension.

If you use income drawdown for the pension, a spouse can inherit 100% of the pension pot into a pension pot of their own, with no tax charge at all on this transfer. If they wanted the money outside a pension or if it went to someone who's not financially dependent on you in a limited list of possible types) then there's a 55% tax charge after you've taken any money for the pension pot.

Here's a list of three funds that you might want to look at and consider using as part of your mixture. The first one is one of the most popular in the country, with good reason:

Invesco Perpetual High Income
Invesco Perpetual Distribution
Invesco Perpetual Monthly Income Plus

There are recycling rules that limit how much of a pension lump sum you can recycle into more pension contributions. Since you have existing savings this won't affect you because it'll be obvious that the savings are the source of the money. There's no cap on how much pension income can be recycled into pension contributions, other than the £50,000 total a year one.

Do you have any existing pension pots? What sort of value? Wondering about the possibility of later using Flexible Drawdown or possibly taking income now to help top up the savings going into new pension contributions.

The comments about using investments instead of savings are right. Every few years inflation will cost you the equivalent of a large stock market crash with no recovery if you just use savings. The investments go down but they also go back up eventually, leaving you better off long term. it's unsettling for a while, until you get used to it, but you do get used to it.

You should also be using your full stocks and shares ISA allowance each year to get tax free income from investments that way.

Given your numbers you'll still have plenty of money outside pensions and probably in savings accounts.

You can protect yourself from variations in investment income easily enough by paying the income into a savings account and using a standing order from the savings account to provide your regular income, Put a couple of years worth of anticipated income into the savings account and it'll smooth out income variations for you.

I'm assuming that you have a fairly normal life expectancy, in the range of age 85-88 these days for those in normal good health of your sort of age. That's how long at least half of people are expected to live. Somewhere between a tenth and a fifth may make it to 100.

gadgetmind

The recycling rules are very complex, and they do saying using funds from other sources is suspect if you couldn't have afforded to do it without the lump sum. However, "intent" is also part and parcel, so I'm not sure how often they actually get to enforce anything!