Advice please for investment in retirement

mariner2

Hi, I am due to retire in 2 months aged 56 on an index linked pension which we are confident will cover comfortably the lifestyle we have hoped for in retirement.We also have savings, all in cash ISA's and I am due to receive a lump sum on retirement. I do not anticipate having to touch our savings nor the lump sum and will be due a full state pension at aged 67.
My concern is the effect of inflation on our savings whilst interest rates are so low ( 2.1% on our ISA's).My wife is against investing in S+S but after much research I am thinking maybe a cautious balanced fund would be a good way of avoiding inflation erosion of our savings.As I have no experience in investment apart from an unfortunate experience through a IFA any thoughts or advice regarding the best way forward would be much appreciated. thanks in advance

Triumph13

The right answer may depend upon what you ultimately want to do with the savings and lump sum. If your plans don't involve touching it, what is it for? Handing on to kids as an inheritance? Funding a more extravagant lifestyle at some future point? Buying a holiday home?

xylophone

a lump sum

Do you have to take it? If not, would you be better off opting for a higher pension?

mariner2

Hi,thankyou both for replies. In answer to the latter reply I have to take the lump sum and cannot increase my pension.
The answer to the first point is not so simple - I've not really thought about it but I guess the answer would be for security and to fund whatever unknown comes up in the future. Both my wife and myself come from what would be described as low income backgrounds so having that security behind us is important and gives us choices in what we can and cannot do whereas having nothing limits our choices.
I'm not looking for high risk to increase the pot as much as possible but I want to protect what we have with possibly a little growth at the same time if it can be achieved - I have a full lifestyle planned for when I retire but who knows what we may want to do in 10 years time. kind regards

Linton

Assuming that you have all the income you need and no great desire to leave a large sum as an inheritance.....

I suggest that you keep a significant sum in cash for immediate access for major expenses and conceivable emergencies in the next 3-5 years. The interest rate isnt a primary concern, but quick access is. Beyond that a cautious managed fund of some form would seem to me to be sensible to try to counter inflation and to top up the cash every few years.

The objective is that you have cash to cover almost anything you could possibly want/need so you wont be forced to sell the investments at a bad time. How you split things depends on how much you have. If it's a few £Ks then keep it all in cash, if it's a few £100Ks keep perhaps £50K in cash and the rest invested.

Triumph13

Whilst I completely agree with Linton about the cash, I'm not entirely sure about the cautious managed fund. You are likely to be retired for 30 years or more and over that timescale a rather stronger weighting to equities might make more sense.

One option might be to divide it up into 'pots' according to timescale eg you could have an 'immediate use' pot in cash for anything unforseen and then separate pots earmarked for each five year period of the future. The pot for the first 5 years I would probably have in cash ISAs. The pots for years 25 to 30 and beyond I personally would have almost entirely in equities at this point. The pots in between would be where your more cautious funds would have a place.

And coming from a low income background myself, I know just what you mean about security!

atush

You are after security, but with your indexed pensions and current savings you seem to have it.

I agree with Triumph above, split the pot into tranches and invest it.

Triumph13

atush makes a very good point that you probably already have security. It could well be that one of the biggest risks you now have to deal with is the risk of never being able to bring yourself to spend any of your 'capital'. I certainly recognise that risk in myself.

Another option that might help with this could be to put a goodly portion into an equity income fund, don't worry about the fluctuations in the capital value and just make sure you spend the dividend income each year having fun!

kidmugsy

http://wpfau.blogspot.co.uk
http://theretirementcafe.blogspot.co.uk

These two US blogs will repay your study.

mariner2

Thankyou all for your interesting and useful replies. The suggestion to split the pot and include longer term sounds a good idea - any thoughts on funds and also cautious balanced funds ? - what do you think of the 'lifestyle' funds?

Very good observation regarding my attitude to spending in retirement - I've read a lot of retirement posts and am aware I need to move from being a saver to a spender (within my means of course).

I've had a quick look at those blogs and they both look well worth reading - thats my project for tomorrow! - thank you so much for that.

kind regards to all thanks again for posting mariner2

kidmugsy

If you go to the boards at Motley Fool you'll find an opinionated, spirited chap called Luniversal, who bangs on persuasively on the merits of investing in Investment Trusts.

For instance:
http://boards.fool.co.uk/baskets-income-to-end-2013-12950436.aspx?sort=whole

Their trade body publishes this every month
http://www.theaic.co.uk/sites/default/files/statistics/attachment/AICStats28Feb14.pdf