Setting up Retiree Portfolio

KT19

Hi All,

Bit of Background: My dad recently passed away and left my mum (Housewife, 60) after his estate is settled with:

1)Approx. £580k in cash which is currently sitting in a NS&I account (This is a mix of his pension pots and life insurance that have paid out) (about 45k of this is in cash ISAs)
2)House value approx. £255k (no mortgage) (May need approx. £10-15k worth of work)
3)A db widows pension of £11k. I need to read through the booklet, but are these type of pensions always rpi or cpi linked?
4) Her own small civil service and private pension which i think will equate to about £2k per annum (Was thinking to delay taking private pension until 65 and continue to contribute the £2880 to get the tax relief? Although it is with Scottish Widows which seems to get a bad name on this forum.)
5)About 35 qualifying years for state pension. (Need to check this)
6) She has no debt and her year to year cost would sit around £15-16k (Again need to check this) (Assume this would be achievable over the long term?)

I hope to go with my mum to see some IFAs in the coming couple of weeks to discuss how best to spread her money to make it work for her. (Her attitude to risk would be cautious to v. cautious)

I have a million questions, but will try to keep them brief.

1) Given the result of the vote today should i be looking to accelerate the IFA selection process? (ie is it terrible to hold that amount of cash in the current environment?)
2)Should i use a fixed fee for the initial advice and then a % for ongoing support? What % <0.5%? Will it cost significantly more to set up portfolio from scratch?
3) Is she too old to be investing?
4) Is the key diversification?
5) What kind of portfolio would suit her needs and risk attitude? 50:50? Too aggressive for her attitude?
6) Are bonds poor value at the minute?

As you can probably see i am a bit lost and have no experience of this type of thing, so any advice would be great! I have started to read monevator and this forum which have been very helpful to start to piece together some ideas. Also signed up for the retireeasy software.

Thanks.

xylophone

Was your father aged 65 before 6 4 16?

KT19

My dad was only 60 when he died.

jamesd

KT19 wrote: »

3)A db widows pension of £11k. I need to read through the booklet, but are these type of pensions always rpi or cpi linked?

Yes. Public sector almost all CPI, private mostly CPI but quite a lot RPI.

KT19 wrote: »

4) Her own small civil service and private pension which i think will equate to about £2k per annum (Was thinking to delay taking private pension until 65 and continue to contribute the £2880 to get the tax relief? Although it is with Scottish Widows which seems to get a bad name on this forum.)

Since she seems to have no immediate need for the money waiting is fine and continuing to pay in 2880 net a year until she is 75 seems sensible planning.

KT19 wrote: »

6) She has no debt and her year to year cost would sit around £15-16k (Again need to check this) (Assume this would be achievable over the long term?)

Easily achievable. She could think in terms of 20-30k+ a year.

KT19 wrote: »

I hope to go with my mum to see some IFAs in the coming couple of weeks to discuss how best to spread her money to make it work for her. (Her attitude to risk would be cautious to v. cautious)

One risk there is inflation, choice is certainty of loss of value due to inflation if she doesn't invest or routine ups and downs but no certain loss if she does.

KT19 wrote: »

1) Given the result of the vote today should i be looking to accelerate the IFA selection process? (ie is it terrible to hold that amount of cash in the current environment?)

No. They are likely to be swamped right now and there's nothing at all wrong with holding cash for a year or three.

KT19 wrote: »

2)Should i use a fixed fee for the initial advice and then a % for ongoing support? What % <0.5%? Will it cost significantly more to set up portfolio from scratch?

Use fixed fee and fee rather than percentage. The amounts are too large for percentage-based to be a good deal. And shop around, prices vary a lot.

KT19 wrote: »

3) Is she too old to be investing?

No. she's a youngster. It's routine for people to be heavily invested until death.

KT19 wrote: »

4) Is the key diversification?

It's vital to diversify, though picking a suitable sustainable income level is important as well. She should be quite well off financially.

KT19 wrote: »

5) What kind of portfolio would suit her needs and risk attitude? 50:50? Too aggressive for her attitude?

If she just said low risk an IFA would be forced to use inappropriately low risk investments with things like lots of cash. She really needs to understand the trade off between loss due to inflation and ups and downs but general upward trend of other investments to help her to become comfortable with other investments. Playing with cfiresim can be really helpful for this, so she can see the pictures showing that at a suitable income level there was historically no case where she'd have faced anything worse than a reduction in income.

KT19 wrote: »

6) Are bonds poor value at the minute?

Yes. So are equities. It's not really a wonderful time to be buying either and I've been switching to P2P gradually over the last year plus. Gradually increasing investing would be the way to go so that she can benefit from any brexit-related drops, without staying in cash for too long - but a few years of lots of cash is fine and not something to worry about.

KT19 wrote: »

any advice would be great!

Read Drawdown: safe withdrawal rates and gradually work through the references it gives. Cfiresim simulation of her situation is important and should comprehensively remove any concerns about her not having sufficient income available to more than meet her spending needs. She's going to be quite well off financially.

xylophone

About 35 qualifying years for state pension. (Need to check this)

Your mother should obtain a new state pension forecast. https://www.gov.uk/government/publications/application-for-a-state-pension-statement

And see p15 here https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/181235/derived-inherited-entitlement.pdf

atush

Quote:
Originally Posted by KT19 View Post
1) Given the result of the vote today should i be looking to accelerate the IFA selection process? (ie is it terrible to hold that amount of cash in the current environment?)


No. They are likely to be swamped right now and there's nothing at all wrong with holding cash for a year or three.

I slightly disagree here. with 600K in cash, and equities fallen across the globe, now is the time to invest at least some in equities to buy some good things at a value price.

I'd suggest starting witht he ISA's and moving them into equities (esp as it is so small compared to all that she has).

I would look at some good solid investment trusts, that yield 3-4%+ per year. Reinvesting the income.

She could look at it (with you explaining) that if she is getting an income of 4%, and actually needed to spend this income, it doesnt matter if the price of the shares goes up ro down, so long as the income stays the same or even better increases each year.

And the truth is, there are many of these investment trusts that have been increasing their dividends year on year for decades.

So look into this with her. at least

robber2

KT19 wrote: »

5)About 35 qualifying years for state pension. (Need to check this)

Just for clarity does this statement relate to your dad or mum?

Whats your mums age?

KT19

Hi all, Thank you for taking the time to respond with helpful advice.

Would it make sense to divide the money into an income generation pot (ITs, anything else?), Cash reserve in current accounts (maybe a bond ladder?) & a longer term growth pot that could be left untouched for longer and thus be more aggressive?
What kind of % mix would the above look like? (100k, 50k, 420k)
Is part of the idea with ITs to use some of the income to buy more holdings of ITs?
Does anyone have any idea how long it would take for an IFA to construct a recommendation report and how long it would take to implement? or is that how long is piece of string type questions?
Should the IFA be chartered?

KT19

Hi Robber2: My mum is 60 and she has 35 qualifying years

jamesd

atush wrote: »

I slightly disagree here. with 600K in cash, and equities fallen across the globe, now is the time to invest at least some in equities to buy some good things at a value price.

Equities aren't at a value price even after the initial brexit changes. The cyclically adjusted price/earnings ratio remains high and it's still too soon to know whether there will be more drops to a typical "big drop" 40% or so fall. We're a fair bit overdue for one of those and the bull market that started in 2009 has been running for a long time now.

All of those are reasons why at the moment it's better to be gradual. Add in her lack of comfort with risk/volatility and a big move now could put her off for the rest of her life. Not getting her scared of investments is probably the biggest challenge here.

I do agree with you that some investing now is a good move, though.

enjoyyourshoes

With that sort of value it might be prudent to seek advice from independent financial advisor. The MSE web has a section on this and how to find/compare etc, worth a read.