Is this a decent strategy?

bigchipper

I am a 54 and I wish to retire at 60 when my Civil Service finalsalary pension of around £17k (£51k Lump Sum) will be available. My wife, 52, has little pension provision but at age 60 she will also be eligible to receive a small, deferred Civil Service pension of £3k (£9k Lump Sum). We will receive full state pensions at age 66 and 67 respectively.

I have recently inherited some money and hope to use this to increase our retirement income and also to help fund our 2 daughters’ university accommodation costs which they start in the autumn (approx £10k pa). At present I have :

· arranged to buy added pension by regular deductions from my monthly salary. This will cost me £800 p/m (net of 20% tax) and buy around £3.2k pa of index linked added pension (which has a 50% widows element and 3 times Lump Sum). While I can absorb some of the consequential salary loss by cutting back on current expenditure, I reckon I will still need to drawdown around £500pm from my savings until I retire to make up the shortfall.

· using both my and my wife’s allowances, put £22k in Cash ISAs and S&S ISAs (50/50 split) with the remainder put insavings accounts. £30k is in a RBS easyaccess account and another £110k is in various other savings accounts gaining approx 3% interest at present. While I need to keep sufficient sums in an easy access account to fund the Uni accommodation costs and my salary shortfall, I would hope to transfer a large part of the remainder into Cash ISAs and S&S ISAs over time.

·made a couple of overpayments to our mortgage (only 5% pa allowed) to get the o/s balance down to £45k. This is on 5year fixed rate of 3.6% and is due to be paid off in Feb 2019 although the fixed period ends in 2017 (it has an early redemption penalty of 4%). This is now a repayment mortgage but I have kept a previously related endowment policy going that will pay out around £15k surrender value (£21k maturity) at last estimate. Not sure if I should cash the endowment in and pay off mortgage balance?


Any views on this approach?

Linton

Your plan seems sensible to me. Keeping a large amount in cash to cover known expenses over the next few years as well as emergencies is the right thing to do. Buying extra FS years isnt as good a deal as the base years as you dont get the large employer contribution, but unless you are going to get into the risks of serious investing the numbers seem reasonable. If your wife isnt earning above her tax allowance it could be worthwhile depositing some or all of the cash in her name.

Just one detail really - with such a large cash balance should you be putting the full £22K into S&S ISAs rather than half into a cash ISA?

bigchipper

Linton wrote: »

Your plan seems sensible to me. Keeping a large amount in cash to cover known expenses over the next few years as well as emergencies is the right thing to do. Buying extra FS years isnt as good a deal as the base years as you dont get the large employer contribution, but unless you are going to get into the risks of serious investing the numbers seem reasonable. If your wife isnt earning above her tax allowance it could be worthwhile depositing some or all of the cash in her name.

Just one detail really - with such a large cash balance should you be putting the full £22K into S&S ISAs rather than half into a cash ISA?

Linton,

Thanks for response.

The fact I would intend to draw an income from the investment in about 6 years made me think the investment timeframe was a bit on the short side. However as I transfer more from general savings into the ISA shelter I may well alter the percentage split. Any views of what would be a sensible proportion based on my current circumstances?

Alas although she works part time my wife does pay tax! Also re the added pension as its a Civil Service pension there is no real employer contribution as such but the return seemed to be a reasonabe one given its relatively risk free, index linked (albeit CPI) and has built in widow protection.