£500,000 and 5 years

Chrism03

I'm in the sad/lucky position of getting an inheritance of ~£500,000.
I am 50 and looking to retire at 55.

What should I do with the money over the next 5 years to prepare for the escape?

Currently I have a couple of final salary pensions that will be worth ~£12,500 per year and will have a full state pension at 67.

Mortgage free and living comfortably on £20,000

MallyGirl

contribute as much of it as you can (limited by income or £40k) into a pension for tax advantages
Stick another £20k per year in S&S ISAs
invest the rest in a diversified portfolio

tacpot12

I'm sorry for your loss. However I'm sure whoever left you this legacy will be pleased that you can secure your retirement with it.

With a full state pension and some DB pensions, you are well setup. I think you should look to invest a large proportion of the legacy; say £400,000. I would save most of the remainer in cash to ensure that you don't have to sell any of your investments at a time when they are less valuable. I would also spend some of the money on something for yourself.

The exact choice of the investment is down to you, but if you have no experience of being a landlord I would stay away from residential property. I would also stay away from esoteric forms of investment such as wiskey, art and classic cars unless you are already an expert in the field.

Linton

MallyGirl wrote: »

contribute as much of it as you can (limited by income or £40k) into a pension for tax advantages
Stick another £20k per year in S&S ISAs
invest the rest in a diversified portfolio

If you are married use your spouses S&S ISA and pension allowances.


Plus leave enough in cash to cover the first few years of retirement. 5 years is too short a time to be 100% invested.


By the time you receive your State Pension your guaranteed inflation linked incomes will meet your expenditure rquirements. £20K/year for the ages 55-67 amounts to say £300K taking inflation into account. What do you want the rest of the money for?

Pension_Geek

MallyGirl wrote: »

contribute as much of it as you can (limited by income or £40k) into a pension for tax advantages
Stick another £20k per year in S&S ISAs
invest the rest in a diversified portfolio

And try and set the portfolio up so that it feeds over to ISA automatically each year, meaning you don't have to mess about with it.

Obvious things like cash reserves in easily accessible accounts, if you don't have this already should be considered.

Chrism03

Linton wrote: »

If you are married use your spouses S&S ISA and pension allowances....


What do you want the rest of the money for?

Yes I'm married so that would £40K per year into S&S ISA (one for each of us?)

Any extra income would be used to set up the kids (uni etc, first car ,bank of mum and dad stuff) and the odd long holiday or two.

Linton

Chrism03 wrote: »

Yes I'm married so that would £40K per year into S&S ISA (one for each of us?)

Yes.


Also his and hers personal pensions - you want as much as possible in tax protected environments. During the time when you are living off your savings you will be able to use both your and your wife's tax allowance to drawdown money from personal pensions tax free after having received tax relief when paying in. So it will probably be worthwhile not taking your DB pensions early.



For £500K it may be worth taking advice from an IFA.

Anonymous101

Its difficult to advise when we don't know your whole financial situation but based on what you've told us then I'd think that if I were in your position i'd be looking to retire now.

Is the £20k your salary or annual expenditure?
If its income then your annual expenditure would be circa £15k which could easily be yielded by investing the £500,000 without any decrease in capital over time.

When your DB pension kicks in this will cover a large proportion of your expenditure meaning that in reality you've easily got enough money to maintain your current standard of living indefinitely.

At this point really I'd see you needing to invest for preservation rather than growth so I'd look to invest as much as possible within S&S ISA's in lower risk, low cost funds something like Vanguards Lifestrategy 60 would be the first area I'd start to look.

You'll be left with a fairly sizable amount which you can't invest into an ISA over the next few years and if you're amenable to carry on working then investing your whole salary (less minimum wage) into a SIPP whilst living off the inheritance could also be a good option.

kidmugsy

There's a limit to how quickly you can invest in ISAs and pensions for two. This may be just as well, given the prospects for the stock markets.

For your mound of cash I'd consider £50k in Premium Bonds for each of you (tax-free stream of small prizes pretty much every month; tiny chance of big wins). Then I'd use the best interest-paying savings accounts you can find, being careful to keep less than £85k for each of you on each banking licence. Be sure to keep your taxable interest each below £1k per tax year.

I'd also consider how best to diversify into e.g. gold (sovereigns, perhaps?), commodities, foreign exchange, and anything else that might diversify your wealth away from equities and sterling cash.

For your children then, according to their ages, look at Junior ISAs and LISAs.

Investing, and even saving, is a risky business; make max use of tax avoidance to try to counteract those risks, and always try and keep charges down.

crv1963

I'd look carefully at all of the above suggestions- 500k into tax wrappers/ savings may not take long to go through!

500k- 100k into Premium Bonds= 400k
40k pa into ISA x 5 years= 400k- 200k= 200k
60k safety money (in case of market crash so cash somewhere)= 160k
20k x 2 Great Holiday for 2= 160- 40= 120k
120k top up pensions x 2 plus then helping children with cars/ Lisa it will soon be depleted.

One option not suggested so far is maybe (and depending on childrens ages) start a pension each for them? £2880pa each for 5 years will give them a good start for their future selves?

I'd also look at writing a new will, to take into account your new investments and ensure that the children don't go on a big spending spree if they are still young!

Chrism03

tacpot12 wrote: »

I would also stay away from esoteric forms of investment such as wiskey....

I'd definitely drink away any return on that :beer: