Early retirement on inheritance.

countermon

Hello,

I am in the very early stages of mulling over my options and would appreciate your thoughts.

First, some info about myself and my circumstances :

-married, teen daughter and wife a housewife, no paid employment.
-aged 56 yrs and possibility of early retirement coming up from a stressful job I have grown to hate.
-house owned outright and no existing debts.
-sizeable inheritance coming my way [£300K ish]

Pension will amount to about £7.5k p.a. and I want to make the best use of the £300k to ensure that the capital is not depleted too fast.
We're a pretty frugal family, so don't want to dip into the nest egg more than necessary to, ideally, provide a similar lifestyle to that we have now, but without me continuing in the job. To do that I would need an income of around £1200 per month. Not asking a lot, am I?:laugh:

I have spent this afternoon trying to read up on the possibilities, but have ended up mind-boggled.:huh:

I don't want to end up with numerous different financial products which I will then have to keep an eagle eye on.... some of the companies involved do seem to be more slippery than a slippery thing when it comes to dropping interest rates at the drop of a hat.

I realise I am in a very fortunate position, so please don't flame me for that. I had to lose someone very dear to me to find myself in this position.

I'd be very pleased to hear your collective expert thoughts.

Thank you.

grey_gym_sock

do you mean the £7.5k pension will start right away? or is there a gap to cover before it starts?

no, you're not asking for a lot, especially relative to what you have available.

you'll probably want to keep a fair bit of cash in savings accounts, but it would be a bad idea to keep the whole £300k there, as the interest will barely keep up with inflation, so if you spend some of it, you're effectively spending the capital.

if you invest some of it, you could reasonably hope to take an income of perhaps 4% from it, while expecting both the income and capital value to grow in line with inflation. though that's only on average - both income and capital would fluctuate (capital more than income). so investing £250k might give an income of £10k.

if you'd rather not deal with investments yourself, then you do have enough capital to make using an IFA affordable. or you could start reading up on investments - it might be more fun than your job

countermon

Thank you for your reply, appreciated.

Yes, the pension would be payable immediately.

If I could get an income of £10k p.a. on top of the pension I would be more than happy. But the bit that's getting to me as a beginner is where to get 4%+ return ?

I have a probably irrational fear of IFA's, in case I get fleeced. If I do get early retirement I will certainly have plenty of time to read up on investments, though sometimes a little knowledge is a dangerous thing, especially in my case.

CLAPTON

is the 7.5k index linked?

even at 3% per annum inflation, in 10 years time the spending power of 300,000 is reduced to 200,000

will you get the full state pension?
will your wife get the full state pension?

grey_gym_sock

4% would mostly be from a mixture of shares and corporate bonds. corporate bonds give higher income than shares, but shares tend to give more capital growth. some kind of mixture of the 2 works well for most ppl.

corporate bonds are a way for companies to borrow money. they promise to pay a certain % per year, and then repay the capital after a certain number of years. so a fixed return - providing the company stays solvent - and in general no growth of the capital value.

shares involve owning part of a company. there's no fixed value of them - they're just worth whatever somebody else will pay for them. the income is whatever the company chooses to pay out in dividends from its profits (if any). but, other things being equal, all the figures - profits, dividends, value of the shares - have a fair chance of rising over time.

you don't have to buy individual shares or corporate bonds directly. there are funds or investment trusts, which are collective schemes for investing in many shares or bonds.

IFAs now have to agree fees with the client. if you talk to a few, you could post what they want to charge on here, and get feedback about whether it looks greedy.

xylophone

Have you looked into state pension forecast?
https://www.gov.uk/state-pension-statement

http://www.telegraph.co.uk/finance/personalfinance/pensions/9800237/Flat-rate-pension-to-cost-couples-1500-a-year.html might be worth a read.

You have about ten years until state pension age - from what you say the income on the lump sum plus your pension will be your only income?

Is your wife a non-taxpayer or has only savings/investment income?
http://www.hmrc.gov.uk/taxon/bank.htm

http://www.hmrc.gov.uk/rates/it.htm

Check on tax and savings income and 10% rate.

Use your isa allowances (consider stocks and shares as well for inflation protection)


Might contributing to a pension for your wife be to your advantage?

http://www.hmrc.gov.uk/incometax/relief-pension.htm = what happens if you don't pay tax.

Consider seeing an Independent Financial Adviser?

http://www.unbiased.co.uk/find-an-adviser?gclid=CJXb27PN7bUCFeXKtAodGU8AEQ

jackyann

I can't give financial advice, but I can say that being retired (and with your wife not working) you do get a chance to look around for small part-time jobs that can be helpful. You can look in the local paper to get an idea, but I often find that they are word-of-mouth. My retired friends do the following which helps and doesn't stress them too much:
clerk for governing bodies / parish councils
film extras
dog walking / pet sitting
gardening
publish / distribute a local magazine
caretake / clean the village hall
proofread
teach adult education classes (LA & privately) and at "weekend retreats"
spending the summer caretaking at campsites

Is your wife going to get a state pension? That will make a difference, and you need to consider what she will get if you did go under the proverbial bus a month after retirement (sorry)

You say you are frugal, but is your teen daughter? (if so please let all MSEers with one know your secret!) She may be happy to get a part-time job for her spends, but will there be enough money to support her education / future career?

That said, I would certainly consider letting go of a job I "hated" and look at alternative income.

atush

Indeed a teen daughter? Will she be headed to University?

Do you have other savings and investments over and above your 300K inheritance? Did your wife ever work and does she have some sort of pension coming up? what kind of work do you do, can you do it part time? On a consultancy basis? Would you do any kind of PT work to fund lifestyle things such as vacations?

Will you need to spend some of your capital upgrading your cars, home maintenance?

56 is a wee bit young to retire completely these days perhaps. Esp if you are young and healthy (or might feel that way if you stopped that particular job ;-)

grey_gym_sock

giving up this job sounds like completely the right thing to do. it's true that it doesn't have to be the end of all paid employment. you may not need to earn more money - depending on any possible 1-off expenditure, as well as on general spending. but you might find uses for more money. and work can be a pleasant experience. i'd keep your options open for now ...

countermon

Good grief, what a helpful lot you are !

Thank you all so much, I do appreciate it.

I'm just going to disappear off the radar while I try to digest all the replies and will be back shortly with a few answers to your questions.

gadgetmind

countermon wrote: »

If I could get an income of £10k p.a. on top of the pension I would be more than happy. But the bit that's getting to me as a beginner is where to get 4%+ return ?

That's the rule of thumb for the index linked amount you can take from a portfolio of shares and bonds. To be even safer, drop this to 3.5%, but state pension kicking in later means that you don't really need to.

What's even better is that you get almost certainly get this extra £10k pa tax free!