What to do with £120k without future plans

redux

A

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?

First time I've heard of it too, but on the other hand if you divide by 12, it turns out to be the same as other discussions about drawing an investment income of 4% while still having enough capital growth to cope with inflation.

To check, want 4% income a year? That is ⅓% a month, multiply by 300, gives 100%.

Obviously this depends on the quality of the investments. We see this 4% mentioned for instance in hypothetical withdrawal rates from a SIPP. 4% isn't necessarily going to apply to the proportion of all wealth that is mentally deemed as emergency cash.

CatLady13

Well I've just read the rule of 300 and it's definitely an eye opener.

I've had lots of food for thought, thank you.

TCA

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?

The Trinity Study was the piece of work that backtested the rule with different withdrawal rates and various equity/bonds splits to see how they did over different periods for a 30 year retirement horizon. From memory, across almost all equity/bond splits (I think), the 4% withdrawal had a very high probability of not depleting the funds over those 30 years (and made good gains in many instances) albeit with plenty assumptions built in. Worth a google.

aj23_2

I'd put a lot of that into the pension. I'm 25 and only had one 2 and a half years, but it's yielding 8% investment growth, plus I get tax relief.

Keep the remainder for a rainy day.

coyrls

aj23 wrote: »

I'd put a lot of that into the pension. I'm 25 and only had one 2 and a half years, but it's yielding 8% investment growth, plus I get tax relief.

Keep the remainder for a rainy day.

Note that you can only pay a maximum of 100% of relevant earnings into a pension in any tax year; if you are not earning, the maximum contribution you can make is £2,280 (net, grossed to £3,600) per tax year.

CatLady13

coyrls wrote: »

Note that you can only pay a maximum of 100% of relevant earnings into a pension in any tax year; if you are not earning, the maximum contribution you can make is £2,280 (net, grossed to £3,600) per tax year.

Thank you coyrls.

I did check this with my accountant and I can pay up to £118k this tax year when using my previous years' allowance. This is probably the best tax year for me to do it as I earned around £12k self-employed and was in full time employment (around £37,500) prior to that. I have based my current contributions on the £2,280 figure, ie. £240 per month, as I don't know what I'll be earning in the next tax year.

aj23_2

coyrls wrote: »

Note that you can only pay a maximum of 100% of relevant earnings into a pension in any tax year; if you are not earning, the maximum contribution you can make is £2,280 (net, grossed to £3,600) per tax year.

If you're earning then that doesn't stop you from adding to it each month.

CatLady13

aj23 wrote: »

I'd put a lot of that into the pension. I'm 25 and only had one 2 and a half years, but it's yielding 8% investment growth, plus I get tax relief.

Keep the remainder for a rainy day.

Thanks aj23.

I see my rainy day as being now to be honest as I have the opportunity to change my career and do something I enjoy and know I have a buffer to fall back on if it all goes a bit wrong.

I am also trying to balance living for the now as well as tucking some away for the future. The person I inherited the money off died 6 weeks after inheriting the money themselves which is pretty sad. The most important thing for me was to give myself security by paying off the mortgage which I've done, now I'm looking at my other options.

aj23_2

CatLady13 wrote: »

Thanks aj23.

I see my rainy day as being now to be honest as I have the opportunity to change my career and do something I enjoy and know I have a buffer to fall back on if it all goes a bit wrong.

I am also trying to balance living for the now as well as tucking some away for the future. The person I inherited the money off died 6 weeks after inheriting the money themselves which is pretty sad. The most important thing for me was to give myself security by paying off the mortgage which I've done, now I'm looking at my other options.

I'd keep it in a top paying easy access account then if you feel like you need access to it now and regularly. I'd definitely add to your pension each month though.

coyrls

aj23 wrote: »

If you're earning then that doesn't stop you from adding to it each month.

Not sure what you mean. The annual (tax year) cap is still 100% of relevant earnings for that tax year.

You can't use carry forward to exceed the annual cap, so I don't see how the OP can use carry forward to make a pension payment of £118K with an annual income of between £12k and £0K.