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Most reliable way to have an income from an ISA portfolio.

Hi,
Quick bit of background info first.
Aged 50 and thinking seriously about finishing work very soon. Have an ISA portfolio worth around 370k, currently invested in low cost funds like vanguard lifestyle etc, all acc units.
pay into a pension from work but obviously cant get that till im 55 at earliest so if i am to retire now it has to be funded by my ISA's.
I live a simple life and reckon i can live on approx 12k a year so an easy 1k a month figure.
What is likely to be best way to achieve that figure ( will all usual caveats about past performance etc etc).
Would it be to swap all my investments over to higher yielding income ISA's and earn hopefully an income of 1k a month which is approx 3.3% yield, but then am I likely to get any capital growth and inflation slowly eats away at the real value of 370k.
Also if shares fall that 370k might become 300k and yield might only be 3.3% of 300k ormaybe more, maybe less.
Plan B is to keep current investment as such and say once a year sell 12k worth of stock to live of for that year and obviously hope that growth is more then 12 k a year so I still get capital growth on top to keep up with inflation. But as before it could drop to say 300 k and i still need 12k a year to live on.
My work place pension are of approx 200k that i can get to in 5 years time.
So which is likely to be the best way to ensure i retire early and live until whenever financially secure with a decent buffer if i want something big in life etc.
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Comments

  • Everybody will have a different opinion, but for me the first choice of living of the natural income. at 3.3%, you sound a chance of still getting a small amount of growth, and potently some dividend growth if you pick carefully. Plan B will be great, if over the time you need to live off the money your stock values goes up, but if it goes down you could be in for a world of pain.
  • dunstonh
    dunstonh Posts: 118,574 Forumite
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    I would use total return rather than yield.   Yield is unreliable and has been in decline for years.   Yield really needs a higher equity portfolio which may be above your tolerance.  Although given the timescale of investment, a higher equity portfolio would be more desirable.   Total return allows you to run a more diverse portfolio which would be expected to perform better than a yielding portfolio over the long term.  Yielding portfolios tend to need a UK bias.     To offset the volatility of the short term, you keep around 2 years income need in cash and top up it from the investments each time the markets are higher but dont when the markets are lower.

    I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
  • Imho don't chase income, you can just live off the total return from your funds, maybe an automatic withdrawal if your platform allows. Global equity yields are ~2.5% and bonds ~1%, so you won't get £12k income from £370k capital without picking higher yielding assets.
  • Thrugelmir
    Thrugelmir Posts: 89,546 Forumite
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    Many companies have cancelled, cut, postponed their dividends due to the current crisis. In days gone by you could rely on the boring banks to provide a regular source of income. However the BOE is considering requesting the banks to defer reinstatement of their dividends until a much later date as well. Historic yields may well fall by the wayside as companies opt to strengthen their balance sheets to weather the storm. Perhaps boost your pension scheme contributions and hang in with your job until the economy is well on the way to recovery.
  • colsten
    colsten Posts: 17,597 Forumite
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    Would a part-time, or lower paid, job be an alternative to stopping work altogether? At 50, you are still in the prime of working age.
  • ColdIron
    ColdIron Posts: 9,642 Forumite
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    ^opm^ said:
    Also if shares fall that 370k might become 300k and yield might only be 3.3% of 300k ormaybe more, maybe less.
    That's not how yield works, it's not like interest from savings. Yield is a variable figure expressed as dividends declared per share (in pounds and pence) divided by the current share price. All things being equal (which they may not be) if the share price fell but the dividends (in pounds and pence) remained the same (which they may or may not) the yield, expressed as a percentage of the new share price, would rise. In this case to 4.07%
  • AnotherJoe
    AnotherJoe Posts: 19,622 Forumite
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    edited 28 July 2020 pm31 5:25PM
    dunstonh said:
    I would use total return rather than yield.   Yield is unreliable and has been in decline for years.   Yield really needs a higher equity portfolio which may be above your tolerance.  Although given the timescale of investment, a higher equity portfolio would be more desirable.   Total return allows you to run a more diverse portfolio which would be expected to perform better than a yielding portfolio over the long term.  Yielding portfolios tend to need a UK bias.     To offset the volatility of the short term, you keep around 2 years income need in cash and top up it from the investments each time the markets are higher but dont when the markets are lower.


    ^^^^^^ this. If you chose income stocks you are missing out a large % high growth companies / sectors.
    You could also  go halfway, choose income focussed ITs which will in effect do that stock selection for you.
    Or 50/50, put half in a few income ITs and half in general acc investments (coudl be ITs EFs funds whatever floats your boat)
    reason for ITs is they can hold back growth from good years to pay out in bad.

  • Income ITs:
    REITs - but choose carefully. SGRO, BBOX, PHP are what I would choose.
    Royalties - SONG
    Contract - Infrastructure, Clean energy

    I agree with posters above about investing for total return. It’s the only way that makes any sense to me and invest globally, not regionally.
    The fascists of the future will call themselves anti-fascists.
  • dont_look_now
    dont_look_now Posts: 97 Forumite
    10 Posts Name Dropper
    edited 28 July 2020 pm31 10:08PM
    I prefer the "total return" approach, but it works better combined with a cash buffer.
    E.g. suppose you started with a cash buffer of £25k, and with only £345k actually invested.
    If your investments only yield about 2%, you'd be living off the yield + drawing down about £5k per year from the cash buffer. If the investments make some good capital gains, any time within the first 5 years of retirement, then you could sell a few investments to replenish the buffer. And if they don't, after 5 years, you'd have access to your pension, giving you more options.
    There are other ways to manage a cash buffer. The key is that it means you don't have to restrict yourself to higher-yielding investments (or alternatively, have to plan to realise some capital gains each year, when in some years you'll have capital losses, not gains).
  • ^opm^
    ^opm^ Posts: 150 Forumite
    Part of the Furniture 100 Posts Combo Breaker
    So it seems that total return is better then plonking it all in some high yielding income fund.
    So is it best to leave it where it is and leave them as acc units and just say once a year sell 12k worth of units or a bit of both, keep it in same fund but take the income from the fund, quick look the vls 80 is yielding 1.87% So take the 1.87% yield and then top up to 12k by selling x amount of units.
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