A smaller inheritance

ruinen

kidmugsy wrote: »

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?

I would agree with this. I don't see much downside to just holding it in cash till you have a better idea of your future.

gardenia101

mw2655 wrote: »

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

As someone who is mortgage free at 44 I'd say that knowing you own your own home no matter what happens is wonderful. I ummed & ahed about paying off my small (£48K) mortgage (0.54% above base rate, so not as good as yours but still a fantastic rate) for over 2 years when I received an inheritance. My head told me not to pay it off, but my heart won. I guess it may depend on whether you are living in a house that you want to stay in long term. A clich! but you never know what is coming around the corner at you. In my case I suddenly had a health problem that caused my to lose my well paid career & with it my financial security. Not having a mortgage meant I didn't have to consider moving.

BobQ wrote: »

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.

I second this. I'm paying in extra to my pension to get an extra £3K/year. This is helping to make up for the child rearing years when I couldn't afford to pay into a pension. Although from your posts I think you've probably been paying in for a lot longer than me :rotfl: so this advice may not apply if you already know your pension is on track. there are some very helpful bods over on the pensions board.

What would your uncle have wanted you to do with the money? My Great Aunt had always loved travelling & would love for me to use some of it on a special trip, which I would have done if health problems hadn't made it very difficult to get travel insurance.

A special piece of jewellery? I inherited a few lovely rings, but if I hadn't I probably would have bought a quality piece, something to pass on to another female relative in the future.

atush

Look into specialist travel policies for those with health conditions. Could free you up to take a trip.

ruinen

gardenia101 wrote: »

As someone who is mortgage free at 44 I'd say that knowing you own your own home no matter what happens is wonderful.

If you have a low rate of interest on your mortgage and can earn higher on your savings then as well as earning more, keeping it as cash means more liquidity. If you had an emergency and needed money for any reason, you avoid having to worry about re-mortgaging your house.

PippiShortsock

Thank you all so much for your helpful replies. You’ve given me a lot to think about!

As far as the mortgage goes, it runs for another 13 years with a £275 charge for early repayment. It’s on a small leasehold flat, which I love dearly, but I doubt I’d ever think of it as entirely my own even when if I paid off the mortgage, given the existence of a freeholder. My heart and my head are having a battle about this one though. More significantly, my wonderfully cheap mortgage is portable so, if my employment situation improves, I could think about buying something a little larger (with a garden!) in the next few years and use the mortgage to partially fund that.

I’m tempted to take the redundancy and go freelance, but it’s a nerve-wracking decision. I would never make enough from it normally, but it could mean my inheritance supports a more enjoyable lifestyle for me. It’s something to bear in mind over the coming months.

I’ll look into the Investors Capital Trust and Harry Browne Permanent Portfolio as suggested – thanks kidmugsy.

I’ve looked into adding years to my pension. For a £50,000 lump sum I could get another £3,000 pa at 60 plus a £9,000 lump sum at that age. I have no idea if that is better or worse than I could manage in a SIPP. I may seek advice on the Pensions forum as suggested.

Finally, gardenia101 asked what my uncle would have wanted me to do with the money. He was somewhat allergic to spending money himself and one of his greatest pleasures was contemplating his share certificates accumulated over two or three decades. He only bought shares, never selling except when forced to by mergers. As a result was able to leave substantial legacies to me, a charity and several other beneficiaries. Part of me wishes he’d used his investments to lead a more luxurious and comfortable life instead, but ‘wasting’ money in that way would have made him miserable! Maybe that’s why I’m so keen to make the right decision about what to do with my bequest.

jamesd

PippiShortsock wrote: »

I'm 47 (she says through gritted teeth).

47 is good. Close to 55 when you can take personal pension tax free lump sum or income of both. You can then reinvest that into more pension contributions if you don't need it.

PippiShortsock wrote: »

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.

What sort of one day drop? One month? One year?

A one month drop of the main UK market in a bad year will be in the 40-45% range perhaps once every ten years. About 20% every two to five years, routinely. 70% and 80+% for emerging markets funds. Your task is to pick a mixture of investments that won't scare you during a bad month.

Can you handle a one month drop of say five or ten times your net pay? I do, but can you?

PippiShortsock wrote: »

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.

Discuss with the beneficiaries but my inclination given current market uncertainty is to urgently move into cash. If some do not want that, come to some arrangement between them that will have each agree to pass on to the others any appropriate portion of gains or losses based on the risks they choose to take. So those who want to stay invested get the gains or losses while those who don't aren't exposed.

BobQ

OP if there is a prospect of redundancy the financial assets you have inherited may stop you claiming any means tested benefits. If you are content you can get work it may not matter, but if not spending money on paying off a mortgage and buying extra pension may prevent these counting as savings. That said I agree that paying off a mortgage at the rate you have is stupid.

jamesd

The inheritance is £160,000. With a range of 4% to 6% as a sustainable income level, depending on risk level used, that's an available income of £6,400 to £9,600 a year. It appears that there's a prospect of a redundancy payment of perhaps £50,000 that would boost that to £12,600 a year. Maybe there are also other savings and investments available, or a prospect of letting a room to boost income.

But this is at age 47 with a pension that starts unreduced at age 60, so capital drawing for 13 years can be done. Using 4% growth and 4% inflation an income of £16,500 for 13 years until age 60 seems doable, using a spreadsheet I have for these calculations.

It appears that the mortgage is currently set to cost £5,769 a year in capital costs for 13 years. Unlike the income calculation that doesn't increase with inflation so it's not quite as costly as it seems.

When age 60 comes around it would be possible to use an equity release mortgage to boost income until the state pensions start. Perhaps adding £5,000 a year of income.

The mortgage is a little frustrating here. The interest rate is so cheap that it is a bad idea to change it right now, yet ideally one that lasts into retirement and is paid off by the state pension income would improve the pre-state pension income situation. Best to leave it alone.

PippiShortsock wrote: »

I’ve looked into adding years to my pension. For a £50,000 lump sum I could get another £3,000 pa at 60 plus a £9,000 lump sum at that age. I have no idea if that is better or worse than I could manage in a SIPP.

The open market rate for buying inflation-linked annuity income is about 3% of the capital. You're quoting 6% plus a lump sum but that's ignoring the prospect of growth of investments over 13 years. say enough to grow the capital value to 1.88 times what it starts at, using 5% plus inflation growth. That's still well better than 3%. It's a good deal if you can afford living costs until you can take it. £50,000 worth is probably OK. More would probably compromise your position too much if you did end up long term unemployed. But remember that you're already on track for £10,000 of work pension plus I assume £7,500 from the flat rate state pension, so your financial stress is very much greater before the work plus state pensions than after. £3,000 a year extra to take you to £20,500 a year is nice but maybe not something you can afford to buy right now, since it would cost you about £3,850 a year from the income you can take over the next 13 years.

Now would be a really good time to be concentrating hard on saving money, pretending that you have to live on a much reduced income. About 1/13th of anything you can save between now and any redundancy would be added to your ongoing income for the following 13 years (based on the calculation of £16,500 of income from £210,000 for that period). I can save something over £20,000 a year. Can you save an extra £10,000 between now and possible redundancy? That's another £770 a year of income over the following years if you manage it...

Depending on your income needs you're not a long way away from being able to retire early. Allowing for mortgage cost today you have only around £9,000 or sustainable income equivalent but with perhaps £20,000 of saving a year doable you can raise that by £1,500 a year for 13 years, perhaps £1,100 a year for 13 years plus the years until the state pension starts.

If you don't become redundant for one more year, the £50,000 for more work pension looks like a good deal. One more year of work reduces you to needing income for 12 years instead of 13 and perhaps gives you the chance to save another £20,000. That gets you the margin you might need to be able to afford the £50,000.