My mother has £200,000 cash to invest for retirement, please help!

CompBunny

Hi,

My mum wants me to help her figure out what to do with her cash for retirement, I'm totally confused.

- My parents have just completed financial separation.

- My mother is 58 and has a very small civil servants pension from before they married. She has paid enough contributions for state pension.

- She owns her home outright.

- She works so will be able to leave this money largely untouched until retirement - but think she would like to be able to access some of it in case of a big emergency.

- She has spoken to an IFA who assessed her risk attitude as low-medium. If she went with him he would charge 3%.

- My father has suggested that she invest it herself instead of losing 3%, as he has done this with a large inheritance he recently received.

- Her mother lived until the age of 92 and her father early 50s.


Where on earth do we start with DIY-ing? I don't even know what to search for....

Any help would be greatly, greatly appreciated. I want my Mum to have the comfortable retirement that she deserves.

Thanks very much

dunstonh

- She has spoken to an IFA who assessed her risk attitude as low-medium. If she went with him he would charge 3%.

That is high on £200k. She should be looking for around 1/3rd of that at least. She should try another.

- My father has suggested that she invest it herself instead of losing 3%, as he has done this with a large inheritance he recently received.

That is fine. She just needs to decide her investment strategy, which investments to use, which tax wrappers, who provider/platforms, how often she is going to review and rebalance it etc. Some people can do all that and do it well. Others cant and end up making a right mess of it.

Onawingandaprayer

£200,000 is a heck of a lot to DIY, particularly as you are honest enough to admit to being confused. I would suggest it's got to be an IFA. Other people on here will advise you/her what the best basis is for the advice.

CompBunny

Thankyou for your honesty...looks like an IFA would be the safest option, and safe is important for her retirement income. Maybe we could start with an IFA and try and learn as much as we can about investments to take control in the future if we feel confident enough.

How would you recommend finding a good trustworthy (the one she got the quote from uses ethical investments, known to be trustworthy etc...but she doesn't know of any others) IFA who charges a better rate?

jackyann

I am 3 years older than your mother, and I had, 4 years ago, a similar large sum to invest. The difference is that I do have a NHS pension, and my state pension is about to kick in.

I did the following - and I do not offer this as advice, simply saying what I chose:
Made sure that I was well "upgraded" with things around the home, car etc.
Some in an account that paid reasonable interest, but limited withdrawals (for an emergency)
I spread the rest around the best interest rates that I could find, bearing in mind the "safe" upper limit, and that I take the ethical score into account.
I move some of this money around to pay into the higher interest "regular savers" accounts
I get a cash ISA every year, and pay into a stocks & shares ISA with the Co-op.

I have managed so far to get a 3% return, but it has dropped from just over 3% to just under in the last few months.
I can only say that it suits me - I feel in control, and am happier with this return than chasing higher & riskier returns. I am also happy to spend a small amount of time checking interest rates etc.

I know this wouldn't suit everybody, but this board is about sharing experiences (sorry, cross-posted, my way probably wouldn't suit, but am leaving this post in case it is of interest)

CompBunny

Thanks Jackyann, it is indeed of interest - I will show my mum all of these posts and talk through it together. I think she would be interested to see what you have done as someone in a similar position

atush

Jackyanns approach would mean losing ground to inflation (esp for your mother now as interest rates have plummeted).

You could see 4-6% growth on a conservative investing approach meeting your mother's risk profile (esp 4% ie the lower end).

2 things, I agree that agreeing to a 3% fee with such a large fund is too much and so would ask for a lower fixed rate fee.

Second, she should be investing some of it in a pension. Her old FS one isn't a full one, and she has some years and is still working. Do her current employers contribute to a pension for their employees? If not, they will have to soon so ask them when and how much. As the best pensions tend to be the ones employers pay into for you (whcih we here like to call 'free money').

If there isn't one, she can open a personal pension. And every 80 she puts in, will become 100 immediately. She can put in 50K this year and 40K next, or her total salary's worth, whichever is lower. This money can be left to grow, or 25% can be taken out as her tax free lump sum immediately as she is over 55.

Then, she needs to fill her isa allowances. 5680 in cash this year(5740 next). She can do this each year, so that her cash needs for repairs/replacemtns/emergencies are earning tax free. Then she can look at her S&S isa allowances. Invested in income funds, trackers and others suggested by her IFA. Cash at S&S isas alone will see over 22,000 of this money out of the taxmans' hands in the next few months alone.

So, a good IFA should be telling her to fill her ISAs, and a pension. If they don't, then come back here. Actually, come back here anyway.

CompBunny

Haha, thanks Atush.

I think she is paying into a pension with her current employer, I will check this fact with her. She has been very good at filling her ISA allowance each year, and has recently started making sure she switches to the best rates too.

I will definitely be coming back here to check everything out with you guys! I think I also have to remember that this whole thing has been very hard on my mum and she needs a low stress option too. I squeeze every single penny but sometimes she is willing to spend extra for less stress - at least an IFA will help with that if she finds the right one.

So what sort of rate should she be looking at paying an IFA, around 1%?

dunstonh

How would you recommend finding a good trustworthy (the one she got the quote from uses ethical investments, known to be trustworthy etc...but she doesn't know of any others) IFA who charges a better rate?

Statistically, the odds of finding a bad one are low. IFAs handle the majority of regulated advice transactions but account for just 1% of complaints at the FOS. Most of which are rejected. Indeed, just in November the FOS commended IFAs for their record keeping and justifications which made it easier to show the advice was good in most of the cases they looked at. She could be unlucky and find one in that 1% but realistically her only issue is going to be finding one that isnt greedy.

kidmugsy

CompBunny wrote: »

She has paid enough contributions for state pension. ...

She works so will be able to leave this money largely untouched until retirement

Some tips.

(1) Don't leave it untouched until retirement. On the contrary, live off part of the capital so that her earnings can be contributed to a pension. That way she maximises use of that tax shelter which will prove very desirable if the pension she eventually draws from her fund is untaxed, in whole or in part, because she otherwise has only State Pension and "a very small" civil service pension. Her new IFA will presumably recommend a pension provider. But don't linger - she'll lose the 2012-13 allowance after April 5th. If that means getting on with it now before you've identified the IFA of your dreams, consider doing it yourselves to begin with.

(2) Consider not starting State Pension immediately it's available. Defer drawing it for a while, living off capital instead. That way she'll get an extra 10.4% on her State Pension for every year she defers it. This would be especially attractive if she intends to carry on earning for a while after qualifying for State Pension since the pension she's deferring would presumably otherwise have been taxed.

(3) Check whether she would get more state pension if she made some extra contributions (if she's already credited with 30 years then this issue doesn't arise [unless the proposed new pension rules apply to her, when the magic number rises to 35 years] - so get an official pension forecast).

(4) As everyone says, fill ISAs: but be quick - the 2012-13 allowance vanishes after April 5th. Then fill up the 2013-14 allowance on or soon after April 6th.

(5) Keep an eye on National Savings and Investments in April-May. If they should happen to reissue their Index-Linked Savings Certificates, then check that the terms suit, and then make the maximum investment.

(6) I suggest this from a position of ignorance, but can one get a bigger civil service pension by deferring drawing it for a while? Your IFA ought to know.

After all this there would still be ample capital left to benefit from your IFA's advice.

xylophone

I appreciate that your mother is feeling disorientated - the ending of what she no doubt thought of as a lifetime's commitment and now having to deal with large sums of money arising from the parting of the ways may well feel somewhat like widowhood.

Taking time to consider options is an excellent policy but as other posters have suggested, she might wish to consider using her stocks and shares ISA option for this year before it is too late.

Can she contribute more to her occupational pension?

If she envisages staying in her present home, might she wish to consider any repairs/adaptations?
Has she had a look here http://www.unbiased.co.uk/ for an independent unrestricted financial adviser?