Half a million pounds to invest, need to live off the interest. What's best?

Harridan

This isn't me (sigh, if only), it's my aged mother.

She's in her seventies and is selling her house, will have £500,000 to invest. She wants to rent so that she's not under pressure to move, and she has no other savings or income, so she will need to live off the interest for the six months or year or so that she will be renting. She doesn't want to risk any capital, is talking about leaving it in a bog standard instant access account which are paying about 4/ 5% at the moment? But I don't think that will yield enough to enable her to live stress-free for a year.

Any suggestions?

Thanks.

CLAPTON

I dont really understand the question..what does she live on now and what will she be living on after a year?
how much does she need for stress free living?

Browntrout_2

My advice is that you need to find an Independent Financial Advisor for your mother.

If she could get 3.5% tax free income that would be £1,500 a month.

Say they built a portfolio yielding ~3.5% income this year, if that yield then grows for the next 20 years, it could be yielding closer to 20%, whereas cash will be still be yielding close to base rate.

TBeckett100

dont go to the bank to see an adviser, they give limited advice. i have always maintained financial advice should be independant and thats why I have never worked or wanted to work for a bank. capital investment bonds may be worthwhile, 25k withdrawals pa, will not affect age allowance , deemed net basic rate tax

Harridan

ATM she has her pension, £130 and another private pension from my deceased father which is about £70 per month.

I forgot about that, she'll still have that.

She lives in London so a one bed flat in a decent area is something like £800 -£1000 per month, plus utilties, council tax etc. I reckon to cover those sort of costs, she'll need at least £1200 per month, then there's food and clothing and leisure. So probably not less than about £1600 -£1700 per month and nearer £2000 to be really comfortable and not worrying about money.

TBeckett100

so 25k net will do then

Lazy_Runner

So you are looking at £22k after tax. Which is 4.4% of the 500k. (22k comes from (2000 - 200(pension)) x 12 months = 22k).
Its possible, but that doesn't take into account inflation.

Of you savings/investment income you need to leave a portion invested so that the principal amount keeps up with inflation. I have no idea what that figure is but let us say 30% of the net income should not be withdrawn.

So say you withdraw 70% of the after tax income.

So that means she should be earning 6.28% after tax. That is a lot harder to achieve.

Two ways forward; 1) invest the money through a good financial adviser even if it is in things like gilts/corporate bonds.
2) Just spend the money for the rest of her life. 22k a year translates into 22 years, not taking into account inflation.

HTH

TBeckett100

corporate bonds are flat at the moment - negative returns. best a cautious managed fund with some fixed interest

EdInvestor

Harridan wrote: »

She wants to rent so that she's not under pressure to move, and she has no other savings or income, so she will need to live off the interest for the six months or year or so that she will be renting.

Do you mean that she will be buying another property to live in later?

In which case she won't want to take any risk with the money and should just spread it around the best paying savings accounts.

If she is downsizing so that some of the money will be used long term to generate income, then she could take advice on how to invest this portion for income and low risk growth. Avoid investment bonds.

amcluesent

>a bog standard instant access account which are paying about 4/ 5% at the moment?<

Sainsbury is offering 6%

Kaupthing Singer & FriedLander will give 6.23% for 12-month deposits (minimum £250,000)

Not sure I really understand your position, but surely you should be talking to an advisor on minimising the IHT liability...

PBA

TBeckett100 wrote: »

i have always maintained financial advice should be independant

But you don't know how to spell it???

For this amount of cash, nobody on here will be able to give you decent advice, because you shouldn't just be lumping it into one account. Go see a couple advisors (and bank advisors do have a use here, as their advice will be free). Look at what they suggest and do more research from there.