Advice on savings/pensionetc

bigfreddiel

Hi,

In a nutshell my partner and I retire next year (her),and 2011 (me) and we have the following debts, savings and pensions.

Debts
====
No Debt - £200 on Credit cards paid off every month
No Mortgage - own house worth say £450,000

Savings
=====
ISA's Cash and Shares - £140,000
Premium Bonds - £60,000
Savings in interest acct - £140,000
NS&I 5 year bond 42nd - £30,000

Pensions
======
Pension (2008) - NHS 15 years service and earning about £7,000 per year
not too sure what this equates to as pension - not much
is my guess.
State Pension

Pension (2011) - Civil Service Final salary 23/80ths of about £27,000
State Pension

I plan to use our full ISA allowances for the next 4 years. (£56,000 approx)

So I should have the bulk of our savings in a tax free environment, and pension may be below any taxation break that exists in 2011.

So do things look okay or should I be doing anything else to maximise income and minimise tax for the big day in 2011?

Cook_County

I am surprised you are not expecting State pensions each? If you add these in you can model your likely income expenses each year from now onwards to see if your savings are sufficient...

bigfreddiel

I stand corrected - State Pension added - Thanks very much

So are we doing okay or should we be expecting a lowering of life style?

JoeK_3

What are your risk profiles?

1) Cautious
2) Balanced
3) Adventurous

JoeK

EdInvestor

You need to do some more research on exactly how much pension income you will both get, this is also importnat from the tax point of view.

Count roughly 5% pa income from all your other savings.

jamesd

What strikes me is the very high proportion of your money that is in Premium Bonds, savings accounts and other near-cash places. That seems far higher than you require for say five years of living normally through a stock market slump. So, I suggest working out how much extra cash income you need above the fixed pensions for five years and putting the rest into longer term investments, assuming that you're happy to take investment risk and don't simply want to buy an annuity. I doubt that you really require more than 50,000 or so in cash.

Cash ISA money can be transferred to stocks and shares from next April so it's definitely worth keeping any cash ISA money there until then.

If you're contemplating selling the house for a smaller one, now would probably be a better time than waiting until retirement, if you're planning to live in the same area.

Ignoring the house and pensions it appears that you're likely to be able to achieve about 18-19,000 in investment income, assuming the money is in investments, not savings accounts, so it keeps up with inflation.

If you don't want to manage the investments yourself you have ample funds there to justify paying a professional to do it for you and should have no trouble getting that work paid for solely out of the recurring annual commission from investments.

What is her anticipated total pension income? It's useful to target 10,000 per person to exploit the individual personal and age allowances. This may make it a good idea to make additional pension contributions for her into a personal pension this year, when the contribution limit is her total salary. Assume 5% income from any pension contributions you make.

Are either of you able to buy additional years of the work pensions? This may be a good deal and is definitely worth investigating.

It seems very unlikely that you will see a significant drop in lifestyle with 15,500 from the 23/40ths pension, 18-19,000 potentially from investments plus the other pensions. A total income in the 40-45,000 range appears achievable.

bigfreddiel

Thanks for that jamesd - but I made a boob, my pension will be 23/80ths of my final salary which I expect to be about £27,000 by 2011 - I.e do 40 years and you leave on half final salary.

Still its not too bad $about £7,800 per annum, plus my state pension 5 years later.

jamesd

I'd say that a potential income that's still in the 33,000+ range is not bad at all. Wondering whether you might end up as a higher rate tax payer in retirement is a pretty good thing and if investments do well that's not impossible.

bigfreddiel

Thank you very much for your comment, Hmmm a higher taxpayer when retired - I'm not so sure I like the sound of that.

What's your opinion of letting a 'professional' to look after a portfolio, eg Coutts Bank maybe - whats good for the Queen must be good for us mere mortals?

Seriously tho' are these type of institutions any good or should I just keep on doing it myself?

Cheers

dunstonh

Hmmm a higher taxpayer when retired - I'm not so sure I like the sound of that.

Nothing wrong with that. You are looking at an income in excess of £40k a year in retirement and most would love that.

What's your opinion of letting a 'professional' to look after a portfolio, eg Coutts Bank maybe - whats good for the Queen must be good for us mere mortals?

Obviously as an IFA, I would be biased towards letting a professional look after it as it's how I spend most of my time. However, I wouldnt let a bank or national firm look after any portfolio. They dont have a very good record on that front.

You would be better off with an investment specialist IFA (the term IFA covers multiple roles. You wouldnt want an IFA that mostly deals in mortgages doing it) or an investment manager. Having a smaller local firm would usually result in better service and if you get in with the owner/partner/directors, then chances are they will be there for a long time as they dont move around as much as the employees. Something that the banks are prone to. I knicked a portfolio from a private bank a few years back because the client didnt see the same person twice, got charged massively above the normal charges and they seemed to churn for the sake of churning. There is also no explanation as to the investment strategy. It appeared all very random. That will be no surprise to the other IFAs and investment managers here who would have heard that a number of times.

jamesd

I don't suggest an institution. I do suggest an investment qualified IFA, ideally one who is also pension qualified. You clearly have sufficient funds to split them and have the IFA manage one portion while you manage the other and that would give you a fair idea of what to expect. It's also possible to split the money into two or three sets and have two IFAs working on different chunks while you handle the third, helping you to determine how each IFA does compared to the other. Do be sure that you give each an identical set of instructions if you do this. Involving more than one would decrease the discounting available but may be worth it for risk spreading and determining who you get on best with.

At the moment your money seems at the far cautious end of the investment spectrum and I expect that you can do substantially better with someone whose job it is to manage things.

Instructions like "keep at least x years of y Pounds a year above my pensions in cash or cash equivalents so I can be sure of that part of my income" or "provide at least z Pounds a year in income to me from the investments for the next 5 years" are perfectly fine and can let you accept more investment volatility (up and down movement over the years) than you might otherwise accept if you were doing it yourself.

You still have some years before retirement so it's likely that pension and investment planning can reduce your tax and other liabilities in retirement.

Given the likely income levels, don't be surprised if holding some investments in investment bonds is suggested. They are a useful tax approach when taxable income is likely to be over 20,000 a year, and more so when it may be higher rate. There are a range of providers and charges, some good, some bad, the best ones offering the same sort of wide range of investments that you find in good fund supermarkets or pensions.

As dunstonh says, potentially having an income high enough that you might be a higher rate tax payer if you don't work a bit on tax planning is a good thing - it'll get you a comfortable retirement, health permitting.