Investing for income after redundancy

Audaxer

BLB53 wrote: »

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.

That's interesting as I'm recently retired and looking for some good regular income from investments. I am now thinking about Investment Trusts, but don't yet know much about them. I'd be interested to know what good Investment Trusts you have if possible, and what the benefits are with a mix of Investment Trusts compared to a mix of funds. Thanks.

baj25

atush, 2% of c300k feels like a lot to hand over! Then 0.75% IFA + 0.2% platform is c.1% pa, plus the fund charges.
kidmugsy, thanks, there are remarks there that strike a chord with me.

Eco_Miser

baj25 wrote: »

I’m not sure why I would draw this down to put into S&S ISA though, assuming we stay 20% taxpayers in future.

Depending on your drawdown route, 25% is taken tax-free, either as a lump sum or as a quarter of each tranche taken. Putting this into S&S ISA means you didn't pay tax on the way in, and you won't pay tax on the way out.
Also, many in early retirement have a taxable income less than the Personal Allowance plus Starting Rate Savings Allowance plus PSA. Boosting the pension to just reach that allows even more money to go into an ISA without having paid tax on it.

baj25

Sorry if I am dim EcoMiser, I get that 25% taken from SIPP is tax free, but once you have taken it, it is still tax free whether you spend it or put it in/take it out of an S&S ISA isn't it? Could be you are trying to explain something that will be useful to me, so bear with me.

kidmugsy

baj25 wrote: »

Handing everything over to IFA looks so easy, but looks like costing maybe 2% up front and up to 1% ongoing...

The labourer is worthy of his hire but in a low-return world that annual 1% is going to take a real chunk out of your income.

baj25 wrote: »

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.

Presumably the money you are planning to run through the SIPP may as well stay as cash within the SIPP: there's no point investing it only to sell the assets promptly to let you drawdown income.

You could always set yourself some allocation to work towards over the next few years e.g. 50% equities (tracker funds), 10% property (REITs), 10% Precious Metals (for instance gold sovereigns stored securely in some way that lets you avoid fretting - e.g. at the Royal Mint, if you don't insist on the lowest cost provider), 30% cash. The allocation is entirely a matter for you - the first requirement being that it doesn't cost you any sleep.

You may be interested in remarks in comment #16 here.
https://forums.moneysavingexpert.com/discussion/5607194

Eco_Miser

baj25 wrote: »

Sorry if I am dim EcoMiser, I get that 25% taken from SIPP is tax free, but once you have taken it, it is still tax free whether you spend it or put it in/take it out of an S&S ISA isn't it? Could be you are trying to explain something that will be useful to me, so bear with me.

You probably know this, but bear with me.
Both ISAs and pensions grow tax-exempt.
Payments into pensions are from pre-tax income (or the tax is refunded) but pensions are taxed as you take the money out.
Payments into ISAs are from post-tax income, but there's no tax on the way out.
Unwrapped investments are made from post-tax income and suffer further tax on their growth.

If you can get money tax-free out of a pension, whether the tax-free 25%, or that part of your pension that falls within the PA, (which is what kidmugsy mentioned in post #4) that money has never been taxed at all.

If it is surplus to your immediate requirements, you can put it in an ISA and let it grow, and access it when you need it, and it still has never been taxed, and taking it out of the ISA to spend has no effect on your tax band; whereas if you had left it in your pension until you needed it, it would potentially be taxed AND move you into a higher band, especially if your state pension or another pension had come into payment meanwhile.

It's that last paragraph that's important, the rest is just setting out the conditions that apply.

baj25

Thanks Eco Miser, I believe I have got it. I think I had tunnel vision as I will be basic rate tax payer for sure in the future (just from DBs), but I couldn't imagine a scenario where I drew down enough in one tax year to hit higher rate again. Thanks again, Brian

Tcquins

Just bear in mind that whilst you require the carry forward entitlement to be able to contribute 100k, crucially you also need current earnings of that in the tax year to be eligible for tax relief on it

baj25

Good point Tcquins, thanks. I've been a 40% tax payer for more than the last 3 years, so will certainly have some unused allowance to use. Thanks again, Brian