Won A Million - Clueless

short_butt_sweet

londoninvestor wrote: »

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?

i mean (b).

short_butt_sweet

uk1 wrote: »

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.

well, to be fairer to your argument than you're being to mine, it makes a difference whether you are using a mix of investments or only cash deposits.

with only cash deposits, you might hope the interest you get will about match inflation. in which case, and assuming that you want to increase you spending in line with inflation each year, then if you need to cover N years, you can spend 1/N of your starting capital per year. starting in your 40s, you may have 50 years to go, so perhaps you can spend 1/50 of it each year, i.e. 2%. though perhaps interest rates won't quite keep up with inflation, in which case it might be safer to start by spending only 1.5%. with £1m starting capital, that's about £15k per year.

and in the end you expect most of your capital to be gone. and you still need a plan (you mentioned equity release) in case you live longer than expected.

that is indeed different from the amount you could spend if you used cash deposits and wanted to preserve the real value of your capital, which is nothing at all (if the interest no more than matches inflation).

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.

but is that inflation illusion? you would need about 25% or 30% more capital now, in £, for it to have the same spending power as what you started with in 2010. to be clear: it is not a problem if your capital is declining in real terms, so long as it does so slowly enough. that is apparently your plan.

with a mix of investments, you might hope to spend about 3% of the starting capital, increasing that with inflation. opinions will differ a bit - some would give slightly lower or higher figures. so about £30k, starting with £1m capital.

does that figure change, depending on whether you aim to use up your capital after 50 years, or to preserve it so you can pass it on? in theory, yes, very slightly; but it's an approximate figure to start with, so you'll hardly notice the difference at first - which was my point. in later years, when you see how investment returns have played out, you'll be able to make a more conscious choice, about whether you want to spend at a level that looks like depleting your capital (slowly), or preserves it.

using cash deposits can work, if you're happy to spend about half what you might be able spend by using a mix of investments, and to use up all your capital.

EvelynBaker

Firstly- congratulations! A perfect amount of money to win.

Watch mamafurfur on youtube - particularly the video on 'financial freedom' and living off interest generated by savings (compound interest) with even £500,000 in savings at year one you would £20,000 p/a and by year 15 it would be around £35,000. I find these videos really educational.

Or invest in property which is what I would do but I live in London!

But what is the point of money if you're not going to enjoy it?

If I was you I would think about what job you really want to do- maybe this is the first time you have asked yourself that question which is daunting but now you are in a position to spend your days doing something that you enjoy. Perhaps take some time off and travel while you think about it.

Private schools for your children is another really good idea (as much as I hate saying that)
Don't give them access to the money until they are adults. (No, 18 is not an adult!)
The best thing you can ever give your children is your time (apart from a deposit on a house!) so I would look at at least reducing your working hours.

Is there somewhere else you'd rather live? A holiday home perhaps?

Also loved the idea of hiring a cleaner- your wife deserves it!

bostonerimus

The OP can either think of the money as a way to finance their lifetime spending or as a way to set up generational wealth; the first will probably involve spending capital and the other will grow the capital so it can be passed down. I think the OP should seriously consider the latter approach. They should continue to work and use a portion of any investment gains as an income supplement (maybe use it for school fees if you think that's a good idea...I don't think it is) and reinvest the rest. That's what I'm doing. I will leave money to a couple of charities and hopefully set my family up with a large legacy.

Bleg

Congratulations.

I am just curious to know what Camelot advice was. This is the closest I have come to knowing someone who won a large amount of money. I guess OP has a lot on his mind. An update would be nice.

webjaved

Bleg wrote: »

Congratulations.

I am just curious to know what Camelot advice was. This is the closest I have come to knowing someone who won a large amount of money. I guess OP has a lot on his mind. An update would be nice.

Probably on holiday somewhere nice and warm.

Weefles28

Have you thought about buying houses to rent out, OP? This could either give you an extra income every month, or give you an income that you can put into bank accounts for the kids until they're say 18. Then when they turn 18 they have a financial helping hand AND a house of their own.

I'd probably book a holiday or something, you have the benefit of it being the time of year where holidays are on sale cheaper and there's 'kids go free' deals, so this is how you could explain a holiday to people without anyone thinking you've come into money

atush

It could also be unwise in a tax sense. BTL is now very tax unfriendly.

Investing for the children in JISas etc is a good idea, think i mentionned it before

Cotta

My initial question would be where should the OP hold the £1 million before it is divided out? Holding it in a current account earning 0% interest where only some of the fund is protected does not seem like a good idea.

masonic

Cotta wrote: »

My initial question would be where should the OP hold the £1 million before it is divided out? Holding it in a current account earning 0% interest where only some of the fund is protected does not seem like a good idea.

The full £1m would have FSCS protection for 6 months if placed in a UK current account. It would be unwise to leave it there that long though. - See below