A smaller inheritance

PippiShortsock

I am emboldened by Scooby's request for help with his substantial inheritance to ask for some ideas about how to manage my smaller (but still extraordinarily generous) windfall. My uncle kindly left me a proportion of his estate when he died last year. I should receive about £160,000.

My outstanding mortgage is about £75,000 but, with an interest rate of just 0.69% (0.19% over base rate, lifetime tracker), I don't think I should pay it off early. Instead, I thought I should offset that amount in a building society savings account so it is safe, earning more than my mortgage interest and available to pay off the mortgage if circumstances change. I have no other debts.

I'm single and in my 40s. My salary puts me just under the higher rate tax band, so the income from my inheritance, if it is saved/invested, is likely to push me into that bracket. I will receive a public sector pension (currently worth about £10,000 pa index-linked once I'm 60) and I can live comfortably within my current salary. I would prefer not to have to move money around a large number of financial products (e.g. multiple current accounts) to receive a few pounds in extra interest and would prefer ISAs which can be added to year after year rather than one here and and another there.

Most significantly, I am under threat of redundancy next March (50/50 chance I'd say) and, as my skills and knowledge are very specific to my current employer, my opportunities for new similarly-paid jobs are constrained. I am having to contemplate the prospect of an unemployed or underemployed middle age, following a concerted but unsuccessful attempt to find another job last year. If I were made redundant, I would receive a payment which I could live on for 2-3 years. If I were not made redundant, I would probably only get another 12 months' guaranteed employment at a time with my current employer. There is the opportunity for some freelance work in my field, but it would not pay very much. I would enjoy it though!

Ideally, I would like to use my inheritance to ensure a comfortable retirement and to help out my father in his old age. The uncertainty overshadowing my employment, though, makes me reluctant to invest in a SIPP or to commit too heavily to long-term investments.

I am, however, interested in investing some of my inheritance in shares and bond funds - as long as they are likely to provide dividends which beat inflation so that I can watch the roller-coaster of 'growth' over the medium to long term without too much concern.

How would you divide up such a lump sum between different types of investments and savings, given this level of uncertainty over my employment and my financial 'psychology'?

Many thanks for any suggestions you can make.

Pippi

blinko

a general guide is 30% high risk 30% medium risk and 30% low risk with 10% in cash....

What is your risk profile like?
What is your experience with money like ?
the offset account for a mortgage does not count as taxable income....

atush

Ok, Dont pay off the mtg. Too cheap (first I've seen here cheaper than mine- well done lol!!)

Second, although you are under threat of redundancy, with this amt, and redundancy pay I would suggest not leaving it all in cash. I would use ISAs, be they cash or S&S (more likely the latter) but we need to know a bit more to say- what other savings and investments do you have ISA'd or not?

You might consider investing half or more. And can transfer some now or later into a pension. Pension will come into it's own when you breach the HRtax threshold incl savings interest.

I personally would be overweight into equities myself and though I hold bonds and gilts would not be adding them just now.

W/o knowing more abt your overall financial situation, personal circumstances re partner/spouse/dependents and actual age (huge difference between 41- qnd 49 re retirement) I'd say we can't say more.

PippiShortsock

Thanks for the responses. And there was me thinking I'd told you all you could possibly need to know….

I'm 47 (she says through gritted teeth). I have no dependants in the legal sense - but I have a father and two cats who have all more than earned my support over the years. I had savings a few years ago - but they were spent on my mid-life crisis (now resolved). I started an S&S ISA last year when I was forced to learn about the stock market (I'm responsible for my uncle's portfolio until the estate is settled). My ISA contains £3,500 from last year and £3,000 from this year split between some equities, unit trusts and an investment trust and ETF tracker.

I'm not sure about my risk profile. I'm naturally anxious about many things, but I've always gone for variable rates for mortgages, savings and power contracts so I reckon I'm ready to take the rough with the smooth financially. I'm relatively calm about watching share prices fall in the belief they'll eventually rise again. However, I'm very worried about monitoring my uncle's portfolio as his executor, as I know I'm going to have to sell most of it quite soon on behalf of the other beneficiaries even if the markets drop. I think I'm saying I'll consider taking moderate risks on my own behalf but not if other people are in the mix.

kidmugsy

In your shoes I think I might stay in cash until the business of your job is resolved in March.

When does your mortgage end?

JoolzS

It may not be the most financially astute thing to do but I would pay off the mortgage. At 47 (the age I turn today) I would love to know that the roof over my head is bought and paid for. Money in the bank is too fluid for me and can disappear due to circumstances beyond my control. Bricks and mortar may not be permanent, but they feel a lot more permanent than money in a bank.

AlwaysLearnin

What sort of amount are you looking to live on longer term? I ask, as you could think about using this amount and any redundancy to subsidise a reduced income of freelance work (with £~10k pension kicking in at 60 and ~£7k state pension, assuming full contributions). I'm sure your uncle would be happy to see you use the money the improve your own quality of life, and it may also give you a bit more time to spend with your dad.

mw2655

Hi,

don't pay off the mortgage, your rate is too good to waste!

i'd love to have that rate!

although boring it might be best to stay mainly in cash till you know what's going on with your job.

cheers matt

kidmugsy

PippiShortsock wrote: »

My outstanding mortgage is about £75,000 but, with an interest rate of just 0.69% (0.19% over base rate, lifetime tracker)

One conservative but profitable policy would be to see whether anyone is offering a "tracker" savings account that pays, after tax, better than BoE + 0.19%, and then bung £75k in for the time being. Such an account would probably be fixed term, so you'd also want some emergency instant-access cash, as much as poss being in Cash ISAs. When the fixed term account ends, re-evaluate.

If you want to put some of your money in shares, look at the B shares of Investors Capital Trust, an Investment Trust - the "income" from them counts as a capital distribution rather than a dividend, and so is not subject to income tax. Any bonds you might like to buy, e.g. index-linked gilts, should be held in a Stocks and Shares ISA so that the income is free of tax.

Another thing you might consider is the Harry Browne Permanent Portfolio - 25% gold (e.g. gold sovereigns in a safe somewhere), 25% cash, 25% equities and 25% bonds. Using ISAs every year would let you work towards that. (Since I think that many assets are valued too high at the moment, I'd not be in too much of a hurry.) For example put £5760 into a Cash ISA of your choice, £5760 into ILGs in an S&S ISA, £5760 into sovereigns and £5760 into Investors Capital. That's a nice, cautious start. When you come to add to it in the next tax year, rebalance so that you have as near to 25%, 25%, 25%, 25% as you can manage. Keep adding and balancing.

vectistim

Have you looked into buying extra years in your pension scheme?

BobQ

vectistim wrote: »

Have you looked into buying extra years in your pension scheme?

Some schemes have stopped added years now but you can still buy "added pension" which is a similar principle although becoming increasingly expensive as people live longer. But could still be a good idea. If you do this you may get some advice on the Pensions thread.