A bit of guidance for my recently-widowed Mum
segovia1
Forumite 19 Posts
Hi there
I'm looking for a bit of guidance on helping my Mum with her finances following the death of my Dad last summer. It may be that we'll approach an IFA for actual advice, but I was really looking for a few pointers and things to think about before we do that.
My Mum is in her early 70s and in good health. The family house is all paid for and suitable for her needs so there's no need for her to think about moving. Her only income is her State Pension (with widow's element) of about £750 per month. The good news is that currently is enough for her needs. But with energy prices only going up and inflation high, she's a bit worried about how sustainable that will be.
Now to the interesting part. She has savings/investments of c£135k. About £40k of that is in ISAs (mixture of cash and S&S ISAs), but the rest is just in cash savings. She has no pension savings. She feels very strongly that she doesn't want to take big investment risks with the capital, but understands that just leaving it in cash brings in inflation and shortfall risk too. Ideally, she'd like to be able to create a small income with the capital - say a few thousand pounds a year, which should help her if her bills increase in the future.
What sort of things should we be looking at and considering?
I'm looking for a bit of guidance on helping my Mum with her finances following the death of my Dad last summer. It may be that we'll approach an IFA for actual advice, but I was really looking for a few pointers and things to think about before we do that.
My Mum is in her early 70s and in good health. The family house is all paid for and suitable for her needs so there's no need for her to think about moving. Her only income is her State Pension (with widow's element) of about £750 per month. The good news is that currently is enough for her needs. But with energy prices only going up and inflation high, she's a bit worried about how sustainable that will be.
Now to the interesting part. She has savings/investments of c£135k. About £40k of that is in ISAs (mixture of cash and S&S ISAs), but the rest is just in cash savings. She has no pension savings. She feels very strongly that she doesn't want to take big investment risks with the capital, but understands that just leaving it in cash brings in inflation and shortfall risk too. Ideally, she'd like to be able to create a small income with the capital - say a few thousand pounds a year, which should help her if her bills increase in the future.
What sort of things should we be looking at and considering?
1
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Assuming my maths is correct she has a somewhat paradoxical option. That is she defers her SP for say 3 years. Ignoring inflation: each year deferred will give her 10.4%/year extra CPI linked SP ie 31.2% in total (it is not compounded) in her pension:
Extra 31.2%%X£750X12=£2808 or £11808/year total, inflation linked for the rest of her life,
To support £11808/year for 3 years would cost £35424 from her cash accounts. So paid off in extra SP in 12 years which with the 3 years deferring would about match her life expectancy or less taking inflation rises into account Obviously the number of years could be adjusted to match her needs.
The advantages: Zero risk. Extra inflation linked income for the rest of her life. Cheaper than an inflation linked annuity at her current age. A better use for her extra cash than simply sitting ion a savings account. Higher income now.
Do you mean £750 every four weeks?
And, yes, I mean £750 every 4 weeks.
Would she be interested in going down the SIPP or personal pension route and turning £2,880 into £3,600 for the next few years?
She wouldn't have to invest the contributions if she preferred not to.
She'd be happy to consider it, I'm sure. Assume she could only make pension contributions until age 75 (and get the tax relief)?