Won A Million - Clueless

uk1

I have not read slowly all replies, but advice given often seems to presume that living on the interest or growth without touching capital is the correct approach. In other words you die leaving your capital intact. I disagree. Plan as best you can to spend it all leaviung a zero amount roughly on your expected "expiry" year!

To plan this make a spreadsheet which starts at your £1m and increase it each year with what you think you can grow it at with minimal risk or whatever risk you are happy with. If this is 1% then make the annual growth 1%.

Increase your annual spend by an assumed amount each year. Then view the balance at the end of each year as a sinking fund and carry it over to start the next row as an opening sinking fund for the following year. When the spreadsheet reaches 70 reduce your spend from your fund by the amount you believe your state pension might be. Also if you plan to continue to work, make some allowance for that income whilst working. Make sure you maintain your state pensions. Update each tyear with your actual spend for the year.

This is a simplified version of how I run my "wealth". It will show at what age you and your wife will have no cash left and becomes an iterative tool that you can play with until you reach a spend and growth figure that shows you when you will run out of cash when you predict it will be "no longer needed" if you get my drift. In my version I include all realisable aswsets including property othger than our primary home presuming at the momenbt that we have no plans to trade down.

For example .... (Apologies for formatting) ..... this is all over simplified and ignores tax and stuff and is posted simply to illustrate the principle of what "I do" and suggest you consider.

Fund Growth 101.00%

Spend Growth 102.00%

Opening Spend £25000


Age-Opening Balance-CapitalGrowth-Total Capital-Spend-Closing Balance


45 £1,000,000 £10,000 £1,010,000 £25,500 £984,500

46 £984,500 £9,845 £994,345 £26,010 £968,335

47 £968,335 £9,683 £978,018 £26,530 £951,488

etc etc ...

The underlying philosophy behind this is the idea that cash's function is to be spent rather than left to the inland revenue to spend.

Good luck with your life and your plans.

happyandcontented

I agree with the above, especially if it is a windfall you weren't expecting. The only caveat is that many of us would want to make sure our kids also benefited and so that may need to be factored in.

DennisTenus

What I don't get is if a lot of it is invested then there will be a large tax bill because only 20k or 40k if the couple can be put it in ISAs. That leaves a lot left

masonic

uk1 wrote: »

I have not read slowly all replies, but advice given often seems to presume that living on the interest or growth without touching capital is the correct approach. In other words you die leaving your capital intact. I disagree. Plan as best you can to spend it all leaviung a zero amount roughly on your expected "expiry" year!

No disagreement here, the focus should be on total return and ensuring the capital doesn't run out while you are still alive.

uk1

DennisTenus wrote: »

What I don't get is if a lot of it is invested then there will be a large tax bill because only 20k or 40k if the couple can be put it in ISAs. That leaves a lot left

This persons situation is different from 99% of the rest of "us".

If you basically "have enough" then you might wish to conduct your affairs so that you live out the rest of your life simply stress free spending down what you have down to zero whilst not risking that plan on needless speculation. So "investing" except in basic interest earning accounts might not seem essential and you simply pay off the tax you owe and shrug and press on with enjoying life worry free. Not for everyone but an option to be considered if you are fortunate enough to be in that situation.

uk1

happyandcontented wrote: »

I agree with the above, especially if it is a windfall you weren't expecting. The only caveat is that many of us would want to make sure our kids also benefited and so that may need to be factored in.

I agree, but they may have your main home to leave hopefully without tripping IHT and this windfall allows you to seed year to year gifts for kids and shared experiences with grand-kids eg holidays when wanted or needed as seen fit and you get the selfish pleasure of being alive and sharing that pleasuere with them.

short_butt_sweet

uk1 wrote: »

I have not read slowly all replies, but advice given often seems to presume that living on the interest or growth without touching capital is the correct approach. In other words you die leaving your capital intact. I disagree. Plan as best you can to spend it all leaviung a zero amount roughly on your expected "expiry" year!

that is true in theory, but not so useful for a couple in their 40s, because their life expectancy is probably another 40 or 50 years, and they might live even longer, and they need to look out for the survivor of the couple. in practice, that means that they can barely afford to dip into capital at all at this stage if they want it to last for the rest of their lifetimes. so there is almost no difference (at this stage) between a strategy of preserving capital intact or making it last for the rest of their lifetimes. when they are a lot older, so they have shorter life expectancies, then it will be different, and starting to dip into their capital will be OK if they don't do it too fast. though nobody knows exactly how long they will live!

short_butt_sweet

DennisTenus wrote: »

What I don't get is if a lot of it is invested then there will be a large tax bill because only 20k or 40k if the couple can be put it in ISAs. That leaves a lot left

there won't be a large tax bill. you are not taxed at all for having £900k+ outside tax shelters.

you are taxed on the income generated from the capital in each year. but this will not come to much tax, providing most of the unsheltered investments are held by the non-working spouse. (when you allow for the various allowances and zero-rate bands.)

and you are taxed on any realized capital gains on unsheltered investments. but you can realize gains up to just under your annual capital gains tax allowance, and postpone realizing any further gains. this would at least postpone paying any capital gains tax for many years.

uk1

short_butt_sweet wrote: »

that is true in theory, but not so useful for a couple in their 40s, because their life expectancy is probably another 40 or 50 years, and they might live even longer, and they need to look out for the survivor of the couple. in practice, that means that they can barely afford to dip into capital at all at this stage if they want it to last for the rest of their lifetimes. so there is almost no difference (at this stage) between a strategy of preserving capital intact or making it last for the rest of their lifetimes. when they are a lot older, so they have shorter life expectancies, then it will be different, and starting to dip into their capital will be OK if they don't do it too fast. though nobody knows exactly how long they will live!

You are wrong. It is true in practice because it exactly this process I use and have used as my guide and it has done me extremely well. I offer advice based only on my own practical experience.

This couple is in their mid-forties and it is the process I used when I retired when my wife and I was around fifty. It is an iterative process and works as a guide and can be changed as balances and spending changes. You will doubtless question what I say so here are links to a posts dating back to 2010 when I first mentioned it and since. we have done no work since we retired and our sinking fund balance is larger than when I started. This approach has enabled us to live without stress because at any given time we can work out what our situation is and whether we have to change in order to make our reserves last as long as we think we need.

https://forums.moneysavingexpert.com/showpost.php?p=38614678&postcount=9

https://forums.moneysavingexpert.com/showpost.php?p=38661974&postcount=19

https://forums.moneysavingexpert.com/showpost.php?p=68123348&postcount=25


I don't intend to erngage in arguments about this because it demonstrably does work for me, and I offered it to the OP as a way of thinking about their wealth. Extraordinary circumstances deserve considering extraordinary solutions.

londoninvestor

short_butt_sweet wrote: »

so there is almost no difference (at this stage) between a strategy of preserving capital intact or making it last for the rest of their lifetimes. when they are a lot older, so they have shorter life expectancies, then it will be different, and starting to dip into their capital will be OK if they don't do it too fast. though nobody knows exactly how long they will live!

When you advocate not dipping into capital at the start - do you mean (a) not selling stocks and only taking dividend yield / interest, or (b) adopting a total return approach, but withdrawing at a rate which is expected to keep your capital steady or growing over time?

(b) is sensible, but I think (a) exposes you to the risk of distorting your portfolio towards high-yield low-growth stocks which will eventually erode your capital.