What income can I expect from £1m+?

cedarmay

Hi

I hope this is the right place to ask.

I have saved regularly in PEPS and SIPPS and also invested in some BTL properties. I am self employed so will not get any occupational pensions. I may be able to save some more but not very big amounts. When I retire in a few years I will have to live off the income my investments can generate. Other than the BTL I am debt free.

I need to think whether I should repay my BTL mortgages out of future income or use some of my PEPS to pay off the BTL mortgages in future. The BTL mortgages do not have to be repaid for another 10 years so I can let inflation reduce that in real terms (unless there is a case for paying it off?).

I am comfortable with having both property and equities. I see property as offering some protection against inflation (as much as any other tangible asset) and rental incomes would probably keep pace with inflation. But I am open to changing the mix.

This is my position:

£250,000 in PEPS and £150,000 in SIPPS.

BTL properties market value about £1.3m and have mortgages on them of £400,000.

So altogether I have £1.7m of investments or £1.3m after mortgage debt.

After costs and overheads the BTL income is £23,000 before income tax. Mortgage interest costs £15,000 p.a. so if I could pay off the mortgages before I fully retire the income would be £38,000 before tax.

To maintain my current standard of living I calculate I need an income of around £60,000 a year. Is this achievable on my total investments?

CLAPTON

an indexed annuity at 60 would deliver about 2.5% so if you used the million that means you get about 25,000 per annum.

Chickereeeee

3% income form the BTLs?

Hardly worth the extra hassle compared to a FTSE 100 index tracker is it?

vectistim

Chickereeeee wrote: »

3% income form the BTLs?

Quite - £38,000 pa from £1.3 million pounds of property? Are you having to spend huge amounts on repairing them? Are you somewhere strange such that yields are really low, or have you not bought properties to optimise yield?

SailorSam

I can't imagine there are many genuine people who have £1m in the bank would come and ask some strangers on a Internet forum what he should do with it.

Linton

Equities, broadly speaking, should also give you some long term protection against inflation as a company's income and profits will generally rise with inflation. Historical figures indicate you should be able to sustainably take about 4.5% from an equity investment. With care a lot of this should be tax free.

Taking £60K, inflation matching, from £1M would seem to be ambitious or at least provide serious long term risks. See Firecalc for an indication of the possible scenarios. It is based on US data but the lessons to be learned are very relent.

somethingcorporate

An absolute tiny return on your property. Is it commercial property and is most of it empty?

I have one B2L value around £200k and make £12k pa revenue from it and that's still a pretty average yield. From £1m+ property you should be realising a minimum of £50k otherwise it's better off invested elsewhere in a boring tracker with far less effort required.

Linton

somethingcorporate wrote: »

An absolute tiny return on your property. Is it commercial property and is most of it empty?

I have one B2L value around £200k and make £12k pa revenue from it and that's still a pretty average yield. From £1m+ property you should be realising a minimum of £50k otherwise it's better off invested elsewhere in a boring tracker with far less effort required.

Revenue before costs and tax, or profit? Equity investment has minimal costs and a significant income can be tax free.

atush

your BTL yield is low, personally I'd get rid of them- sound like expensive London property with low yield? If you want a higher yield buy cheaper properties in high rental demand areas (such as University towns or areas with a low% of owner/occupiers) if you want to see rental yields in the 5-10% range.

There is not good reason to pay off your BTL mtgs unless your rates are high.

I'd say you could comfortably expect an income of 4-5% of your capital with equity income funds/trusts.

jimjames

cedarmay wrote: »

£250,000 in PEPS and £150,000 in SIPPS.

So altogether I have £1.7m of investments or £1.3m after mortgage debt.

To maintain my current standard of living I calculate I need an income of around £60,000 a year. Is this achievable on my total investments?

I'm not sure if you've checked your statements recently but PEPs haven't existed since 2000 when they were transferred into ISAs so have you been investing since then?

£60k on £1.3m is 4.6%. This should be achievable with a mix of investments especially if you're income producing funds are inside an ISA and therefore tax free but as above your return from BTL does seem very low. Multiplying up our BTL by the value of your properties would give an annual pre tax/pre expenses income of £105,000 so it is easily achieved on that basis.

somethingcorporate

Linton wrote: »

Revenue before costs and tax, or profit? Equity investment has minimal costs and a significant income can be tax free.

Revenue, I am not sure if the OP changed their post but I thought I was comparing apples with apples.

After costs and tax the profit is a much smaller (sometimes negative) figure.

We're in agreement on the investment front.