how do i keep savings ahead of inflation?

Vonnie406

My partner and I have had to stop working due to ill-health. It was a shock and what with that and my own ill-health onset has changed everything for us. My partner receives an ill-health early retirement pension, he pays tax on that. The pension is not enough for us to live on. I am now disabled (3 years now) and cannot work any more. We sold our house, moved to a cheaper area. The plan is to use the money we realised on our property to supplement the pension income. We have just over £200k. The intention being to "pay" ourselves so much a month. I am a novice at saving\investing as we've never had the money to do that. However even I realise that this money will be worth less and less over the next 10 years or so. We've got about 7 years until we get our state pension. I haven't worked out if we'd still need to dip into savings to top-up, but I suspect we will. I really don't know what to do with this money to get the very best return without any massive risk. I have had various thoughts - buying a flat abroad somewhere and using the rental from that and hoping that the money would keep it's value if invested this way, but this seems quite risky and difficult for us to do, due to ill-health. Maybe converting part of the property into a holiday let (but this would be quite an outlay and I am dubious whether there's enough call for such a thing in my area). I've set up a few monthly saver things, but they only last a year and you can't pay much into them. I can't see any way I can invest it safely and keep it's value (or as near as possible). I could really do with some advice/ideas.

Brilley

..whatever you do do not buy property abroad!!! That is nothing like a "safe" investment.

I am not qualified to offer any advise re investments, but I am sure some others on this board will be along to offer you some advice soon.

It may pay you to find a good local IFA that can point you in the right direction, and consider that all investments will carry some sort of risk....


Depending on your current incomes you may want to consider SIPP's as (subject to your tax status), these offer a 20% top up from the govt. and even if you have no income you can still bung in £2,800 per year (which then gets "topped up" by an additional 20%)...

Albermarle

I can't see any way I can invest it safely and keep it's value (or as near as possible).

You have understood the situation correctly .
The only truly safe way is not to invest it but put it into savings accounts with banks , or similar , which are fully covered for £85K compensation scheme ( FSCS) . The problem here is that interest rates are normally below the inflation rate , so your money loses a small amount of value each year. Although at this moment in time , if you saved in fixed term savings , the rates are similar to inflation.
If you want to beat inflation you have to take some risk . As you are in poor health I would avoid any property related investment as it is better for people who can maintain and improve properties themselves .
The alternative is investing in the stock market or stock market related products . You have to find a balance between risk and reward . The lower the risk the lower the potential reward and vice versa he higher the risk , the higher the potential reward.
The main point here is that the longer you invest for the better. If you invest for over 10 years the chances of losing money are quite small, and the chance of growing your money significantly are quite high, based on history . The reason is that in the short term these investments will go up and down unpredictably but the long term trend has always been up .
You could of course invest some for the longer term , whilst keeping the rest in savings account for shorter term need , Does not need to be all or nothing.
You might also consider seeing an IFA ( Independent financial advisor )

Linton

To be fairly certain of beating inflation over the long term you need to invest rather than use savings accounts. Your investments need to be diversified into as many different things as possible to avoid single points of failure, so one holiday let or flat is probably a bad idea, apart from the practicalities of running it.



If you put your money into shares, or rather share funds, you can reasonably expect to beat inflation over the long term. The downside is that there are risks. If your investments are spread globally you are extremely unlikely to permanently lose all of your money since that would require a collapse of the world economy when any guarantees about anything could be worthless. However the values can be quite volatile especially during a crash when you may have to accept temporary falls of say 50% followed by a recovery which could take a few years. So you should not put any money into shares that you are going to want to spend within say 5 years.


One possible approach is to calculate how much per year you will want in the 7 years leading up to State Pension. Put that money into a savings account ladder - 1 year's needs in your current account, another year's needs into a 1 year fixed term account, another into a 2 year account...and two into 5 year accounts. In this way you will be getting the best 100% safe returns available. You may not be able to match inflation but over only 7 years you may well consider that an acceptable risk. Another option would be to set up investments that generate a steady income though that income would be less certain than that from savings accounts. On the other hand it could well be higher.



Hopefully there will be enough money left over which you can put into long term investments since you wont need to touch it for 7 years or more. People can suggest options or you may want to discuss this with an IFA. You could split the money between share funds and savings accounts which would reduce the risk but also reduce the long term return.

xylophone

We've got about 7 years until we get our state pension.

Have you both obtained State Pension forecasts?

https://www.gov.uk/check-state-pension

Have you looked into PIP?

https://www.gov.uk/pip

Had you considered contributing £2880 per annum to a SIPP and thereby receiving £720 per annum in tax relief?

You might consider making your payment now for this tax year and then doing the same after 6 April.

Once the TR for both has been received, you could apply to access 25% tax free and take the balance as regular monthly payments.

You could make your next contribution after April 6 2021 and continue up to age 75.

See https://forums.moneysavingexpert.com/discussion/558016/gone-wrong-with-claim-anything-i-can-do post 14.

Savings rates here

https://www.thisismoney.co.uk/money/article-1583859/Best-savings-rates-General-savings-Internet-branch.html

steampowered

As mentioned by xylophone, tax relief from pension contributions could be an easy instant win for you. Make the most of it if you can.

If this money is meant to last your retirement, you are probably best off investing in a balanced investment fund holding stocks, shares and bonds. And drawing down from that pot over time.

Dazed_and_confused

Depending on your current incomes you may want to consider SIPP's as (subject to your tax status), these offer a 20% top up from the govt. and even if you have no income you can still bung in £2,800 per year (which then gets "topped up" by an additional 20%)...

The even better news is that it gets topped up by additional 25%, not 20%.

So if you contribute £2,800 to a relief at source scheme such as a SIPP or personal pension it will have £700 added making £3,500 in your pension fund.

The maximum you can contribute and get tax relief each tax year if you have no earnings for pension contribution purposes is £2,880. Which gets topped up to £3,600.