Best investment for OAP after house sale

jamesd

Average life expectancy for those who are 66 is to around age 88. That means that you're making financial plans for the next 22+ years. That's easily long enough to be using investments.

There is one effectively certain loss decision you can make: using savings accounts. They are unlikely to keep up with inflation even if you take no income at all from them, so you face a near-certainty of a substantial loss. 3% inflation would cost you almost half of the money in losses (48% loss) at 22 years if you took out all of the interest.

There's one very safe option, far safer than that, which you can use. Deferring the state pension. You stop receiving it and for each year of deferral the amount you will get when you restart is increased by 10.4%. Pro-rated for less than a year. You can defer once even if you have already claimed the state pension. Say you're getting £180 now, three years of deferring would increase it by 31.2% to £237.60 a week/ £12,355.20 a year. This then increases with inflation, the extra bit with CPI inflation, the usual part with the triple lock. You can simply draw on your capital to replace the pension income while doing this. There's nothing as safe as this that gets you effectively 10.4% plus inflation income increase. Three years has a low chance of not making you better off overall if you're a male and in normal good health. Beyond that the chance of you not living long enough to benefit starts to increase but a few more years can still be a good deal.

Beyond that you should be looking to put at least half of the money in investments inside a stocks and shares ISA as the annual allowance lets you get there. Interest and other income is paid with no tax deduction and it's easy enough to get income of 3-4% plus inflation so you really can take that much income without the capital value decreasing, though it's also OK to have a gradual drop. Ideally you'd use a mixture of investments like a global tracker fund, commercial property funds to pay interest and some corporate bond funds also for interest. Plus a fund from the UK equity income sector or an equity income tracker fund.

This pairs the extremely safe pension income increase with investments that have ups and downs but which have a good chance of increasing your capital enough to meet possible care needs in the longer term future.

So far as property goes, I did an example search of retirement properties within 40 miles of Bristol and found a couple for around £20,000 and more up to £40.000. Fairly similar results within 40 miles of Leeds and Newcastle and a lot more choice at the lower end around Wrexham. Buying an inexpensive place could protect you from property price inflation while ensuring that you have somewhere fixed to move to. You could probably rent it out for a while, I haven't checked the rules for this and that probably depends on the specific property.

kidmugsy

whitejohn wrote: »

I see that the premium bonds are also going to £40,000 but I don't know if it really increases your chances of winning that much.

Ignoring the minor changes to the effective interest rate and to the distribution of prizes, I can announce that your chances of winning go up by exactly one third.

Joking aside: you might like to follow up jamesd's suggestion:
https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/299286/dwp024-apr-14.pdf

BucksLady

Well that's a turn-up for the books - suggestion of a buy-to-let. Only last week there was a thread where a guy of a similar age was considering this and the response wasn't positive at all. I will nudge that thread up -confusing to say the least.

traineepensioner

You could open a Santander 123 account and pay in your pension. This would give you 3% interest on up to £20,000 balance. Also, if your travels take you through mainland Spain, you can draw Euros commission free from any Santander branch ATMs....We use this quite a lot :-)

ManofLeisure_2

BucksLady wrote: »

Well that's a turn-up for the books - suggestion of a buy-to-let. Only last week there was a thread where a guy of a similar age was considering this and the response wasn't positive at all. I will nudge that thread up -confusing to say the least.

That's why I didn't mention 'buy-to-let' in my post lol

N1AK

whitejohn wrote: »

You have me seriously thinking about spending all of that money on a motorhome, campsite fees, driving and hassle when I could be relaxing and getting pampered !

There's big communities of expats in Southeast Asian countries doing exactly this. I know a couple who spend half the year living in Asia who can't get enough of it. I'm sure there will be a couple of forums where you could find out more about it from people already there before commiting.

A small rental property (although not without risks) to keep your toes in the UK market could be a good idea for you, although I'm not sure I know enough to say it is or isn't.

kidmugsy

BucksLady wrote: »

Well that's a turn-up for the books - suggestion of a buy-to-let. Only last week there was a thread where a guy of a similar age was considering this and the response wasn't positive at all. I will nudge that thread up -confusing to say the least.

That's because it's not really a BTL, it's the purchase of a retirement flat for the OP, which he will let out in the interim. If he chooses well, there's a limit to his downside since he can just move in himself. It's a world apart from someone in the home counties deciding he'd like to punt on property prices in Leeds. Or vice versa.

whitejohn

jamesd wrote: »

Average life expectancy for those who are 66 is to around age 88. That means that you're making financial plans for the next 22+ years. That's easily long enough to be using investments.

There is one effectively certain loss decision you can make: using savings accounts. They are unlikely to keep up with inflation even if you take no income at all from them, so you face a near-certainty of a substantial loss. 3% inflation would cost you almost half of the money in losses (48% loss) at 22 years if you took out all of the interest.

There's one very safe option, far safer than that, which you can use. Deferring the state pension. You stop receiving it and for each year of deferral the amount you will get when you restart is increased by 10.4%. Pro-rated for less than a year. You can defer once even if you have already claimed the state pension. Say you're getting £180 now, three years of deferring would increase it by 31.2% to £237.60 a week/ £12,355.20 a year. This then increases with inflation, the extra bit with CPI inflation, the usual part with the triple lock. You can simply draw on your capital to replace the pension income while doing this. There's nothing as safe as this that gets you effectively 10.4% plus inflation income increase. Three years has a low chance of not making you better off overall if you're a male and in normal good health. Beyond that the chance of you not living long enough to benefit starts to increase but a few more years can still be a good deal.

Beyond that you should be looking to put at least half of the money in investments inside a stocks and shares ISA as the annual allowance lets you get there. Interest and other income is paid with no tax deduction and it's easy enough to get income of 3-4% plus inflation so you really can take that much income without the capital value decreasing, though it's also OK to have a gradual drop. Ideally you'd use a mixture of investments like a global tracker fund, commercial property funds to pay interest and some corporate bond funds also for interest. Plus a fund from the UK equity income sector or an equity income tracker fund.

This pairs the extremely safe pension income increase with investments that have ups and downs but which have a good chance of increasing your capital enough to meet possible care needs in the longer term future.

So far as property goes, I did an example search of retirement properties within 40 miles of Bristol and found a couple for around £20,000 and more up to £40.000. Fairly similar results within 40 miles of Leeds and Newcastle and a lot more choice at the lower end around Wrexham. Buying an inexpensive place could protect you from property price inflation while ensuring that you have somewhere fixed to move to. You could probably rent it out for a while, I haven't checked the rules for this and that probably depends on the specific property.

Thanks for the comprehensive reply,have been doing a lot of searches, unbelievable that some of those properties start at £20,000, thought the figures were wrong at first. So, flats are an option and I'll keep looking for the right one, maybe not a good investment but should just keep up with inflation. While I was searching I came up with the idea of just buying plots of land so absolutely nothing to do except sit on it, maybe even park my caravan there. If I found one small enough I could maybe even build myself a very small property while I live in the caravan (already kitted out for winter use & solar panels etc). Should more than keep up with inflation, only problem I can see is that planning permission expires after a couple of years, especially if it's been granted.
I will do the ISA, that's a good fill in.
Pension wise, I can see the point in deferring but not 100% sure it's that effective, if I defer and lose 3 years pension then that loss needs to be recovered before I start to benefit from the increase?
I think overall, I like the building plot idea the best if it would work, any comments on this idea please? I'm very technical and good at DIY etc. but not very good with stocks and shares, so I feel more confident with this type of plan.
Really appreciate everyones help!

jamesd

Yes, the loss from not having the pension income needs to be recovered before you get ahead but for three years of deferring the chance of dying first is pretty low and a cautious man would go to five years if healthy so they have good income if they live a long time. It's about producing a safe, steady and inflation-linked long term income for you. It's a bargain at its current price, so good that the plan is to double the price under the flat rate system.

Lots of people just don't look around much to see what property is available. You can usually find bargains if you're flexible about where you'll live. So I enjoy surprising people with them.

I expect that you'd face a lot of competition for plots from people who want to build houses but it might work.

bowlhead99

whitejohn wrote: »

Pension wise, I can see the point in deferring but not 100% sure it's that effective, if I defer and lose 3 years pension then that loss needs to be recovered before I start to benefit from the increase?

It does mean you have to do without in the short term. It is a way to maximise your wealth in the longer term because if you take the monthly cash that you would have had from the state pension and invest it, you can't get a risk free return that comes close to matching it.

My Dad was similarly reluctant to defer - "but.... we're living on these pensions!". I had to sit him down and say "look, you have £xxxxxx in the bank, I don't think you'll end up on the streets living in a cardboard box if you defer collecting your £xxxx from the government this year while holding out for a much bigger number in the longer term". He got it in the end.

If 3 years of deferral sounds like too much, you could always just do one or two. Or, if you defer and then decide you don't actually want to risk sacrificing the cash in pursuit of getting paid a higher figure for a long time in future (e.g. if you had health concerns) there is an option to get paid it back in a lump sum with a bit of interest. However, that would push up your income in the year you took the lump sum and make you a bit worse off if it puts you in a higher tax bracket.

I think overall, I like the building plot idea the best if it would work, any comments on this idea please? I'm very technical and good at DIY etc. but not very good with stocks and shares, so I feel more confident with this type of plan.

Anything that involves you trying to get something better than you could on the open market involves involving some time and skills of your own. So technical and DIY skills would be important, as a bare minimum.

However, it is rather more difficult to build a safe and valuable and desirable house from scratch than it is to change the oil on your car or plumb in a dishwasher or reroute a bit of piping for the toilet, and at your age you would need to know your limits (not wanting to sound age-ist but clearly some things are harder work at 66 than at 26).

Ultimately you might find it difficult to source a cheap piece of land that is near civilisation and easy to hook up to local infrastructure and lay foundations without anybody minding, that someone else has not thought of first.

You have £100-200k to invest. Some people have millions. So you would need to ask yourself, if I can get this plot for £20k and build a house for £80k and have it be worth any more than £100k at the end without too much risk, then why has someone else not already done that?

As a retired person who doesn't need to pay themselves a salary, you might feel you can save a lot on the fixtures and fittings and painting and plastering compared to a professional development company (even though you would still need someone to sign off re building regs and electrical work etc). However, if you are putting a lot of time and effort into something when you could be relaxing in southeast asia, perhaps you should be paying yourself a salary (i.e. generating value) and in a lot of circumstances you won't be able to end up in a significantly better position than if you just buy someone else's ready made house or flat in an affordable area. Otherwise everyone would do it.