What to do with £120k without future plans

CatLady13

Hi all. Just after suggestions and thoughts. My current situation is this:

• self-employed and currently taking a sabbatical to have a change in career. Struggling with the thought of going back to employed work and though my new career path can be done as self-employed, I probably won't make as much money or be as successful
• mortgage is paid
• no dependents or partner
• I'm 43 this year and have a pension pot of around £24,500 with Legal & General UK Equity Index fund. This was setup quite a few years ago and I only paid in minimal contributions but have now upped it to £240 per month. 24 years of full contributions to my state pension.
• inherited a fair amount of money and after paying the mortgage, debts, buying a new car and some other bits, I have around £80k in cash and should have around another £40 - £50k to come but let's call it £40k.
• S&S ISA - I've only just set this up and put £1k into HSBC Global Strategy Balanced.
• am playing the bank tart with getting bank accounts setup and cycling money around, so far have First Direct, Nationwide FlexDirect, and TSB. Santander is next on the list just to get the interest on £20k.
• the rest of the money is sat in various accounts - Tesco saver, Virgin saver, NS&I Income Bonds, £3k in Guaranteed growth bonds, NS&I Saver (£5k), and £50k in Premium Bonds. I know the PBs are a waste of time but let me at least have a few months of hope!
• around £1,200 per month would be okay to live on

I've always lived payday to payday and then on the very thin razor edge when going self-employed (after being made redundant), so I've never had money to play with before. Because my work situation is so up in the air at the moment, I don't have a regular income so will be slowly depleting my money.

I don't want to lock all my money away for the future but am happy to put some away. I just don't know how much I'll need or when or indeed for what. For this reason, I don't want to put a lump sum into my pension and upping the contribution is a compromise as my pension amount is paltry. I still have £19k to put into my ISA for this tax year but not sure if I want to use the whole allowance. I guess I'd like to be able to retire at 55 and the ISA either be partly used to bridge the gap, say from the age of 50, or just to continue building a nest egg if I don't need to cash it in.

I would ultimately like to move house but for the type of house I'm looking at and in the area I'm looking at, I'd need to spend around £100k+ which would take all my cash reserves (a mortgage is not feasible right now). My current house also needs some work, (unless I could sell it as a project), so would likely need around £20k for the work.

I guess I have to decide between going back to work and then being able to afford a nice new house, or carrying on as I am and try and make the new career work as self-employed.

I know no one here can give me the answers but it is helpful to put these things in black and white and also see what others would suggest. It's a nice problem to have but I don't want all that cash going to waste and interest rates aren't great but I guess all I can do for now is to chase interest on savings accounts where I can?

Sorry, long rambling post, and if you made it this far then I guess I should use some of my pot to buy you a beer :beer:

cloud_dog

CatLady13 wrote: »

I guess I'd like to be able to retire at 55....

Not wishing to be harsh but... You're 43, you've got a pot of £24500, plus a lot of cash based holdings and you want to retire at 55 (although reduce work from 50 it sounds like)?

If you extrapolate out your pension £24.5 + £240pm (gross £300), multiply by 12 years, and add on 50% growth (growth could be more) you end up with a pot of approx £90k, and you want that to see you through 35 years (55 to 90)?

I think you are grossly underestimating what actions you need to take now.

Gadfium

cloud_dog wrote: »

Not wishing to be harsh but... You're 43, you've got a pot of £24500, plus a lot of cash based holdings and you want to retire at 55 (although reduce work from 50 it sounds like)?

If you extrapolate out your pension £24.5 + £240pm (gross £300), multiply by 12 years, and add on 50% growth (growth could be more) you end up with a pot of approx £90k, and you want that to see you through 35 years (55 to 90)?

I think you are grossly underestimating what actions you need to take now.

^^This^^

To the OP: Read up about the Rule of 300
http://monevator.com/the-rule-of-300/
You say that £1200 per month is enough to live on. it sounds a bit low to me...you certainly won't be doing much in the way of the high life on £14K per annum. Based on the Rule of 300 you will need an investment pot of £360k.

Audaxer

Gadfium wrote: »

^^This^^

To the OP: Read up about the Rule of 300
http://monevator.com/the-rule-of-300/
You say that £1200 per month is enough to live on. it sounds a bit low to me...you certainly won't be doing much in the way of the high life on £14K per annum. Based on the Rule of 300 you will need an investment pot of £360k.

First time I've seen the Rule of 300. To safely live on £1,200 per month from a pot of £360k, surely depends upon what investments are in the pot? If the investment portfolio is too cautious, I would not think that it would generate enough of a return to allow you to draw £1,200 per month?

CatLady13

cloud_dog wrote: »

Not wishing to be harsh but... You're 43, you've got a pot of £24500, plus a lot of cash based holdings and you want to retire at 55 (although reduce work from 50 it sounds like)?

If you extrapolate out your pension £24.5 + £240pm (gross £300), multiply by 12 years, and add on 50% growth (growth could be more) you end up with a pot of approx £90k, and you want that to see you through 35 years (55 to 90)?

I think you are grossly underestimating what actions you need to take now.

Thanks cloud_dog You're right, I haven't really paid much attention to my pension before as I never really had much to spare to put into it. I guess I'm struggling with locking away large amounts of cash to 55. I've lost 3 people under the age of 45 in the last year and it has maybe skewed my outlook on things right now as in there's no guarantees I'll live to 55. I need to clue up on pensions, thank you.

CatLady13

Gadfium wrote: »

^^This^^

To the OP: Read up about the Rule of 300
http://monevator.com/the-rule-of-300/
You say that £1200 per month is enough to live on. it sounds a bit low to me...you certainly won't be doing much in the way of the high life on £14K per annum. Based on the Rule of 300 you will need an investment pot of £360k.

Thanks Gadfium, I'll take a look at that link.

£1,200 is what I need at this present time to live on but I guess £20k per annum would be more realistic...I don't exactly have a high life, very much a simple one.

CatLady13

Audaxer wrote: »

First time I've seen the Rule of 300. To safely live on £1,200 per month from a pot of £360k, surely depends upon what investments are in the pot? If the investment portfolio is too cautious, I would not think that it would generate enough of a return to allow you to draw £1,200 per month?

Thanks Audaxer, I think I have lots I need to learn about pensions and investments. FYI, the £1,200 per month is for my life right now so very likely to be different by the time I retire.

cloud_dog

CatLady13 wrote: »

I guess I'm struggling with locking away large amounts of cash to 55. I've lost 3 people under the age of 45 in the last year and it has maybe skewed my outlook on things right now as in there's no guarantees I'll live to 55.

I can understand that.

I think you just need to adjust your 'vision'. If you really (really) want to retire as early as possible and enjoy your retirement whilst you can then you need to sacrifice something now.

Whether putting money in to a pension or in to ISAs, or a combination is really down to your specific set of circumstances (I know some of these you have touched on above):

1. Employed?
2. Director of and employed by your own limited company?
3. Does (Would) your employer contribute
4. Roughly how much do/will you earn
5. Are you a 40% tax payer

If you are / would be a HRT (40%) then it tends to sway the pointer to putting money in to a pension. If you are/will be a BRT (20%) then the benefit/downside of pension and ISAs is a little greyer; insofar as pension contributions are tax free but taxed when drawn on, whilst ISA contributions come out of taxed income but are tax free when drawn.

The other thing to consider is whether you are likely to be a tax-payer at all when you start to draw your pension. If you are unlikely to be then I would say that even for a BRT (20%) you would be better off making pension contributions. This is because you will have a personal tax allowance to use up before being taxed on pension income (2017/2018 £11500). So, any taxable income (pension but excluding ISA income) is only taxed after the £11500 threshold.

For me, you are holding way too much cash.

If you decide to go down the pension (or even ISA) route then there are a lot of people on here who could offer reasonable, sensible opinions on how to progress this but, it is only you who can decide what is comfortable for you.

bostonerimus

Pay off all high interest debt
Put 6 month's emergency spending in an easy access bank savings account.
Max out you pension contributions
Max out your ISA
Put anything left over in a regular investment account and transfer to your ISA each year.
If you are ok with HSBC Global Strategy Balanced stick with something similar in your pension, ISA and regular investment accounts.

CatLady13

cloud_dog wrote: »

I can understand that.

I think you just need to adjust your 'vision'. If you really (really) want to retire as early as possible and enjoy your retirement whilst you can then you need to sacrifice something now.

Whether putting money in to a pension or in to ISAs, or a combination is really down to your specific set of circumstances (I know some of these you have touched on above):

1. Employed?
2. Director of and employed by your own limited company?
3. Does (Would) your employer contribute
4. Roughly how much do/will you earn
5. Are you a 40% tax payer

If you are / would be a HRT (40%) then it tends to sway the pointer to putting money in to a pension. If you are/will be a BRT (20%) then the benefit/downside of pension and ISAs is a little greyer; insofar as pension contributions are tax free but taxed when drawn on, whilst ISA contributions come out of taxed income but are tax free when drawn.

The other thing to consider is whether you are likely to be a tax-payer at all when you start to draw your pension. If you are unlikely to be then I would say that even for a BRT (20%) you would be better off making pension contributions. This is because you will have a personal tax allowance to use up before being taxed on pension income (2017/2018 £11500). So, any taxable income (pension but excluding ISA income) is only taxed after the £11500 threshold.

For me, you are holding way too much cash.

If you decide to go down the pension (or even ISA) route then there are a lot of people on here who could offer reasonable, sensible opinions on how to progress this but, it is only you who can decide what is comfortable for you.

Currently I am a sole trader but winding it down so I can take a break, do some courses, and embark on a new career (hopefully). Mentally I need a break. I don't know if I can go back to full time employment, there'd be a fair few compromises I need to make.

Am a basic rate taxpayer and not likely to ever be HR.

Yes I am holding way too much cash though I only received it a few months ago and am still waiting for the rest of it. I guess I really want to be able to move house which would require that cash but that doesn't really fit into my current situation.I think I might be more comfortable splitting some money between the pension and ISA as at least with the ISA I don't have to wait until I'm 55 to access it but then there's the flipside that my investments may have fallen when I do want the money. I need to do a lot of rethinking by the sounds of it

CatLady13

bostonerimus wrote: »

Pay off all high interest debt
Put 6 month's emergency spending in an easy access bank savings account.
Max out you pension contributions
Max out your ISA
Put anything left over in a regular investment account and transfer to your ISA each year.
If you are ok with HSBC Global Strategy Balanced stick with something similar in your pension, ISA and regular investment accounts.

Thanks bostonerimus.

I don't have any debt now.

I think I have enough cash circulating around for emergencies though given I'm not earning a regular income and I don't know when I will start earning enough to live off, I'd be more comfortable having at least a year's worth of outgoings in cash.

The pension fund was setup many years ago when I knew very little about pensions and investments. I only know a little more now to be honest! From what I have learned, I'd say L&G are okay.

I went with the HSBC global balanced fund with a view to it being a sensible investment for what I currently envisage to be around 7 years. If I also add VLS, I'd probably choose the VLS 60. I'm not however averse to putting some into a VLS 80 and HSBC equivalent (or another equivalent fund) but with a smaller proportion of my funds.