Setting up Retiree Portfolio

atush

KT19 wrote: »

Would a reasonable starting point for portfolio construction be something like £100k in say Basket of Seven ITs (Motley Fool) to achieve maybe a 4% per annum return which would nail down her income floor (11k db pension + 4k ITs). Then have maybe a 5 year cash buffer and the rest in longer term equities which would be pretty much left alone for as long as possible? Or are these numbers too conservative if you consider you could use a SWR 3.5 -4%?

Do people consider things like care home costs in their assumptions? Or would you assume that if that ever happened you would use house sale funds to pay for it?

Appreciate any IFA hired will have their own thoughts, but just wanted to establish an idea of what could be expected as a starting point and not go in completely blind. Again thanks for the opinions been v. helpful.

Yes that aproach would be reasonable but with her caution you might want more than 5 years cash buffer.

And a decent sized house in many parts of the country would make a good base fro which to pay for a care home (remember she will get 11K rising, plus SP (plus any of your fathers s2p, serps etc plus her own pension, plus the income of 4K plus from her investments. That is a very decent income of 20k-25K right there?

But th IFA can help you decide how much where. But do take your ideas with you, a lot of IFAs dont think of ITs much due to the old commission based system now gone.

KT19

Thanks, Atush. Will arrange some IFA meetings in the next couple of weeks and will post up the recommendations they make. Guess the trick is finding a good one that my mum feels comfortable with.

atush

Yes, that is key. But you may need to educate her on risk first, and explain compounding. Monevator has some good, easily understood articles.

KT19

One final question before i start speaking to IFAs:

My mums funds are currently sat in a NS&I account which pays interest gross and places the onus on you to declare said interest to HMRC. When she phones HMRC to inform them of the interest payment will they simply adjust her tax code or will they require a self assessment form? Thanks.

xylophone

Incidentally, have you remembered the Inherited ISA Allowance?

Did your late father have ISAs with NS&I or anywhere else?

http://www.nsandi.com/direct-isa



http://moneyfacts.co.uk/guides/isas/inheriting-isas--the-new-rules/

Your mother should ring HMRC and explain her situation - they may well put her into self assessment.

greenglide

which pays interest gross and places the onus on you to declare said interest to HMRC.

Remember that from 6/4/2016 the first £1,000 of interest is tax free and doesnt need to be declared if she doesnt do self assessment.

Anything which does need to be declared should really be on self assessment. The online form is vastly easier that the paper version.

You can ring HMRC first if you really want to.

KT19

Hello again. Once again thank you for all the helpful comments!

Finally concluded my dad's estate and have met with an IFA. I originally thought this would be in July, but the estate had some tax issues that were discovered and had to be settled hence the long delay.

The first IFA we have seen has suggested that my mum invests 250k into an onshore investment bond (PruFund) and that the remainder of the cash is gradually invested in a more general way, so as not to have everything in the PruFund, with an amount held back to be retained as cash.

The IFA thinks this would be roughly in line with my mum's cautious nature and reflect the fact that she doesn't have to chase returns to sustain her lifestyle (16k per year) The also acknowledged that the fees for the PruFund would be higher than usual (approx. 2% all in IFA included). The initial setup fee for everything would be about 3.5k with an ongoing charge of 0.3%. They also said that the market was particularly high at the moment and that they would hold off investing until early spring next year?

Is an investment bond a good option? A quick google search seems to suggest that people had complaints about them circa 2010 regarding opaque charging structures?

Linton

I would consider the Pru funds in an investment bond atructure pretty suitable for the circumstances described meeting her income needs and avoiding almost any need for her to worry.. They do what they are supposed to do with minimal hassle providing a consistent return year after year. I notice that in the Great Crash the Growth fund dropped around 15%, much less than the UK and global Indexes, which was recovered within a couple of years. Apart from that it has shown a very steady 6-7% annual return for the past 12 years which seems to be the period for which it has been in existance.

Which Pru fund is being proposed?

aldershot

To start, condolences for losing your dad so young.

This troubled me:

"They also said that the market was particularly high at the moment and that they would hold off investing until early spring next year?"

Was this an IFA or Mystic Meg? How can they possibly know? What if the market is higher in the spring, then what?

Personally I would be very cautious of any adviser who said anything like this to me. What they should have said is something like, "Investing a lump sum on a single day has some risk that that day's price is unfavourable. Investing 250k over 6, 12 or even 24 months will ensure you have an average input price which should smooth out any peaks and troughs."

On a side note, what is the advantage of the Pru Fund over just opening a Hargreaves account and buying a bunch of low cost index trackers? Fees will always be a drain whatever the fund or future performance. Fees are guaranteed, returns are not.

Linton

aldershot wrote: »

......

On a side note, what is the advantage of the Pru Fund over just opening a Hargreaves account and buying a bunch of low cost index trackers? Fees will always be a drain whatever the fund or future performance. Fees are guaranteed, returns are not.

The Pru funds have a long history of very steady returns - they are deliberately managed to achieve this. If you a buy a set of equity trackers you must be prepared for a drop of 40% every decade or so and a drop of 20% every few years. Could Mum's nerves stand it?

A set of trackers requires management which will need to be paid for. I think we can assume that Mum wont be doing this. Drawdown from a variable capital base requires very careful management to ensure you dont drawdown too much when prices are low. Again who will do this? With the Prufunds in an investment bond you can set up a steady automatic annual drawdown of 5% of the initial investment. This will be tax free, at least at the time of drawdown, and so make her tax affairs simple.

In Mum's case I think it is reasonable to believe that a quiet life with minimal financial management concerns is far more important than taking the effort to squeeze every £ out of the investment. Mum needs simplicity far more than she needs capital - she has more than enough capital to meet her requirements for the rest of her life.

A nearly comparable alternative is to use cash. However this gives rise to more tax difficulties and for the forseeable future would provide a much poorer return.