Investing for income after redundancy

baj25

I got some helpful advice on the forum last year when deciding whether to take redundancy, so I am back for more.
I took the cheque, and have spent the last 6 weeks talking to a couple of IFAs and trying to get a clearer picture of what to do with our stash. I don’t expect to get the final answer on here, but filtering out the dead ends would save time and benefiting from other’s experience would certainly help.
Handing everything over to IFA looks so easy, but looks like costing maybe 2% up front and up to 1% ongoing.
Context- me and wife mid 50s, good health, around 30K in DB pensions between us starting soon. State pensions about 80% of full due to contracting out, starting at 67. 120K in collectives (all UK, mostly ISA), 95K cash ISA plus emergency kitty. I want to put c100K gross into SIPP this tax year to reduce tax hit on redundancy payout. Another lump sum coming next year from wife’s pension. One nugget I took from one IFA is that we probably don’t need to take much risk, we can take some market volatility, inflation is my biggest fear. Income is main goal.
Any steer based on that would be much appreciated. TIA, Brian

BLB53

I 'retired' at age 55 yrs and have been living off my investments for the past 8 yrs - another two yrs until state pension.

I use a mix of investment trusts and the Vanguard Lifestrategy 60 - the trusts give me a quarterly natural income and I sell units from my VLS once every year for my 'income' - the fund grew by 18% in 2016.

It can be fairly simple to go DIY if you have a simple plan and stick to it - there is so much information around now and the low cost funds and platforms mean it can be very economical.

I would certainly explore the likes of Monevator http://monevator.com/ and diy investor http://diyinvestoruk.blogspot.co.uk/ for a steer on low cost income strategies before you pay for an IFA.

Good luck!

Linton

It is difficult to give a steer because you havent said what you want to achieve - how much income for how long? Are you thinking of using your SIPP completely by the time you get your SP? Is it your aim to get around £15K-£16K/year for 12 years whilst waiting for SP?

Some general things....
1) Get your SP up to the full amount
2) Get your income from as many sources as possible: Natural income from world-wide dividends, selling capital growth, etc etc. Dont take income from selling assets if prices are low - use your cash instead.
3) Max out S&S ISAs every year if possible, drawing down from your SIPP as much as you can without exceeding a tax band. This will be more difficult once you have SP and DB. Doesnt apply if you are keeping a SIPP to avoid IHT.
4) Invest world wide, dont focus on UK.
5) You could reasonably reduce your cash holding if you have no major expenditures planned - down to say £50K.

kidmugsy

baj25 wrote: »

Context- me and wife mid 50s, good health, around 30K in DB pensions between us starting soon.

Check whether either of you will be below the Personal Allowance for income tax and ensure that that person does some income drawdown from, say, a SIPP. Expected PA: £11,500 in 17/18, £12,500 in 20/21, presumably something in between in between.

Rheumatoid

baj25 wrote: »

I want to put c100K gross into SIPP this tax year to reduce tax hit on redundancy payout.

Can you put that much in a SIPP in one year? Might be useful if I can engineer a voluntary redundancy package which would be around £100k and I would like to try and reduce the take hit on it or offset it.

xylophone

State pensions about 80% of full

Voluntary NI?

https://www.royallondon.com/Global/documents/GoodWithYourMoney/TOPPING-UP-YOUR-STATE-PENSION-GUIDE.pdf

xylophone

Can you put that much in a SIPP in one year? Might be useful if I can engineer a voluntary redundancy package which would be around £100k and I would like to try and reduce the take hit on it or offset it.

http://adviser.royallondon.com/technical-central/pensions/contributions-and-tax-relief/member-contributions-tax-relief-and-annual-allowance/

Rheumatoid

xylophone wrote: »

http://adviser.royallondon.com/technical-central/pensions/contributions-and-tax-relief/member-contributions-tax-relief-and-annual-allowance/

so 40k is the max and he would have to make use of carrying allowance over from previous years?

baj25

Thanks for replies folks.
Thanks for links to monevator and diyinvestor, I spent a while looking over them last night, some interesting ideas there.
Even suggesting using SIPP until SP kicks in counts as a steer to me. The way politicians are tinkering with pensions makes me wonder what SP will be worth in 12 years though!
I can see benefit of getting SP up to max, it has a good payback. I can leave this for now I think, if we do some more work and pay NI that may increase SP anyway, then see how much to contribute in the future.
I am acutely aware of the need to diversify! LS funds look a simple way to do this with low costs. I have seen that getting multiple global diversified funds adds cost and without adding any real diversity, but it feels like a lot of eggs to put in one LS basket. I haven’t seen any suggestion of 2 or 3 global funds that sit well together though.
Yes, reducing cash makes sense, I was thinking even less than 50K.
We will both be tax payers in the future.
I am aware of the 40K p.a. limit into pensions, I have plenty of headroom from previous years to use. My logic in doing this is to get my taxable income down to c.43K for this year- I’m 55 in 3 months so could then access it with much less tax (personal and possibly IHT). I’m not sure why I would draw this down to put into S&S ISA though, assuming we stay 20% taxpayers in future.
Thanks again, and any ongoing thoughts appreciated. Brian

atush

what is the total bening looked t for the IFA? 2% could be excessive- btut might not- would need to know the pot size. A set fee, not a % might be better.

1% ongoing is high. I'd look for it to more like .5%

kidmugsy

John Kay makes remarks that might interest you.

https://www.johnkay.com/2016/12/01/how-to-invest-for-a-comfortable-retirement/