Investment for income

martystagram

My 80+ year-old mother has some pensions and shares income which covers her monthly expense, along with a few ISAs and some money in bank, around £10k.
She also has a fund worth around £37k which has lost money over the last year and costs around £500 a year in fees. This fund doesn't give her any income. Any profits are automatically re-invested. 

Our question is, would there be a better place to invest the £37k so that she could receive some income from the money? She is thinking about the cost of fuel and price rises over the next few months could start to eat into her savings !!!!!! her income might not cover her expenses.

Albermarle

along with a few ISAs and some money in bank, around £10k.

Do you mean Cash ISA's ? If so, do your mean she has £10K in cash savings when adding all the ISA's together + some money in a current account?

She also has a fund worth around £37k which has lost money over the last year and costs around £500 a year in fees. This fund doesn't give her any income. Any profits are automatically re-invested. 

By todays standards the fee seems on the high side, so could be a good idea to change it anyway. Can you provide any more detail? The fact that it has lost money this year is the same for nearly everybody though.

Currently it sounds like an ACC ( accumulation) fund, and should be possible to change it to an INC ( income ) fund. However there is no such thing as a free lunch and INC funds tend to grow much slower in the long term.

Linton

There are different ways she could consider.  Which she should choose will depend  on various factors.  To list some:
 - how much income she wants
 - how stable that income should be
 - what extent could she can monitor and manage her investments
 - whether she wants to keep her capital - does she want to leave the £37K to her beneficiaries or is she happy to spend it all.

The best and simplest way of achieving maximum stable income if leaving an inheritance is not a requirement could be to buy an annuity.  It is difficult to find typical rates at 80 but for someone aged 75 an annuity costing £37K could provide a fixed £3K/year for the rest of her life.  I estimate that for someone aged 80 that would rise to £4270/year or perhaps £3K matching RPI.  The rates could be significantly higher if she had serious health problems.  She would have to get a quote, my figures just give a rough idea.  The downside is that it would use all her money.

Cheaper than an annuity could be simply to cash in her investments and drawdown the £4270 which would mean that she ran out of money after 8-9 years.  If she dies early her beneficiaries win, if she dies late she has a number of years without the income.

The alternative to either of these guaranteed options is to use investments.  She would need to invest fairly cautiously otherwise a crash could seriously reduce the amount that could be drawn down. There are 2 options here:
 - sell off some investments each year
 - invest in dividend or interest paying funds

Both would require ongoing monitoring and management, perhaps annually. Selling off investments could be particulalrly problematic here since she should not draw down too much if she is to avoid running out of money.  But what is the rioght amount to drawdown would require some judgement.  The process of drawing down could require effort on her part.

A portfolio generating dividends and interest has the advantage that it requires much less management and could provide a  more stable income.  It should be possible to arrange for the payments to be made directly to her current account automatically, so no admin required there. A 5% return could be reasonable, ie £1850 initially which may rise over the longer time with inflation and rising interest rates generally.  An important benefit could be that much of the £37K could be available for the beneficiaries.