£150K to invest long term

polyp

I have just received a lump sum of £150K which I wish to invest and supplement my income from for the future. I am 55 years old and don't have a mortgage but have only a small salary so I envisage drawing a bit of the capital each year but also interest on money invested. But I am not sure of the best way to do this. Can anyone advise me please? 

dealyboy

Hi @polyp ... you have asked a good question in the right place.

It would help more experienced MSE'ers if you could tell us more about your assets and investments, and also your outlook work wise. Home owner? pension provisions ?

polyp

Cool!! Thank you for responding.
I have a low income (maybe £6k a year). I do airbnb and take in foreign students to supplement my income but would love to stop this!
I am 55 in June. Believe my NI contributions are all maximised, and also have a private pension pot of around 40k.
I own my home (worth £500K) and a beach hut (worth £35k). Single, no dependents.
I just received £250K and after paying off my mortgage, doing house repairs etc...I will have £150K to invest.
What i really want is to factor in living 30 years and trying to make this 150K and my existing property help me give up the students in my house and give me an income (ideally 20kpa but that might be total wishful thinking...).
Because I have no dependents, apart from leaving a bit of cash to nephews and nieces and some to charity, I can eat into this although i would like to keep hold of my house as long as possible.
There you go!!!
Currently it is all sitting in savings accounts earning between 3-3.5% interest (in pots of up to 85K.
 

Band7

How much do you need to live on each year - what are your ongoing living costs - heating, food, apparel, insurances, car, utilities, phone etc? Have you done an SOA?

Albermarle

Currently it is all sitting in savings accounts earning between 3-3.5% interest (in pots of up to 85K.

This is fine for now but the problem with savings accounts is that the interest is less than inflation ( especially today, but also most of the time to a lesser extent), so the value of your money slowly goes down.
To try and beat inflation, you have to invest, usually in stocks and shares, although this works best over the long term.
So some kind of mix of savings accounts and investment accounts is probably the way forward.
 
Believe my NI contributions are all maximised,
It is important that you properly check that you will get a full state pension
Check your State Pension forecast - GOV.UK (www.gov.uk)

and also have a private pension pot of around 40k.
Investing via a pension is tax efficient, but you the max you can add each year = your gross salary.
So if you earn £6K , you can add £4,800 and the provider will add £1200 in tax relief ( even though you do not pay tax I guess) 

Overall though the 'bad ' news is that probably £150K + £40K in your pension is not really sufficient to retire at 55, unless you have a pretty frugal lifestyle. If you wanted it to last a lifetime, and keep up with inflation, you would be looking at an average income from it of about £6Kpa . You could take  more before you get your state pension and less afterwards, but nowhere near £20K pa I am afraid, or it will be gone too soon.

Probably you will have to seriously consider downsizing your home and releasing some of the equity to live on.

xylophone

Had you considered making pension contributions?

Are you saying that you have £6000 in "relevant earnings" and supplement this from income from your lodgers?

Read below carefully.

https://www.mandg.com/pru/adviser/en-gb/insights-events/insights-library/tax-relief-members-contributions#:~:text=It's sometimes easier to think,7(2) ITEPA 2003)

Even if you have no relevant earnings, while under age 75, you may still contribute up to £2880 (net) to a personal pension and receive tax relief of up to £720.

If you have relevant earnings of £6000, you could pay up to £4,800 into a personal pension and receive tax relief of up to £1,200.

You could consider using your ISA allowance in a stocks and shares ISA as (potentially) a better hedge against inflation than all cash savings.

polyp

How much do you need to live on each year - what are your ongoing living costs - heating, food, apparel, insurances, car, utilities, phone etc? Have you done an SOA?

I have never heard of an SOA but will do one later today.
I think my living costs are about £500ocm and then food and going out on top. 

polyp

Albermarle said:

Currently it is all sitting in savings accounts earning between 3-3.5% interest (in pots of up to 85K.

This is fine for now but the problem with savings accounts is that the interest is less than inflation ( especially today, but also most of the time to a lesser extent), so the value of your money slowly goes down.
To try and beat inflation, you have to invest, usually in stocks and shares, although this works best over the long term.
So some kind of mix of savings accounts and investment accounts is probably the way forward.
 
Believe my NI contributions are all maximised,
It is important that you properly check that you will get a full state pension
Check your State Pension forecast - GOV.UK (www.gov.uk)

and also have a private pension pot of around 40k.
Investing via a pension is tax efficient, but you the max you can add each year = your gross salary.
So if you earn £6K , you can add £4,800 and the provider will add £1200 in tax relief ( even though you do not pay tax I guess) 

Overall though the 'bad ' news is that probably £150K + £40K in your pension is not really sufficient to retire at 55, unless you have a pretty frugal lifestyle. If you wanted it to last a lifetime, and keep up with inflation, you would be looking at an average income from it of about £6Kpa . You could take  more before you get your state pension and less afterwards, but nowhere near £20K pa I am afraid, or it will be gone too soon.

Probably you will have to seriously consider downsizing your home and releasing some of the equity to live on.

Albermarle said:

Currently it is all sitting in savings accounts earning between 3-3.5% interest (in pots of up to 85K.

This is fine for now but the problem with savings accounts is that the interest is less than inflation ( especially today, but also most of the time to a lesser extent), so the value of your money slowly goes down.
To try and beat inflation, you have to invest, usually in stocks and shares, although this works best over the long term.
So some kind of mix of savings accounts and investment accounts is probably the way forward.
 
Believe my NI contributions are all maximised,
It is important that you properly check that you will get a full state pension
Check your State Pension forecast - GOV.UK (www.gov.uk)

and also have a private pension pot of around 40k.
Investing via a pension is tax efficient, but you the max you can add each year = your gross salary.
So if you earn £6K , you can add £4,800 and the provider will add £1200 in tax relief ( even though you do not pay tax I guess) 

Overall though the 'bad ' news is that probably £150K + £40K in your pension is not really sufficient to retire at 55, unless you have a pretty frugal lifestyle. If you wanted it to last a lifetime, and keep up with inflation, you would be looking at an average income from it of about £6Kpa . You could take  more before you get your state pension and less afterwards, but nowhere near £20K pa I am afraid, or it will be gone too soon.

Probably you will have to seriously consider downsizing your home and releasing some of the equity to live on.

thanks...I think probably the same. My brother has done some figures based on the idea of a 7% investment rate, and the assumption that i would sell my house at the age of 65. I love my home and would like to think I could live in it forever but it has lots of stairs so realistically, I would have to move on at some point. But I don't particularly like the assumption and basing my annual income on that.
I have just booked an appointment with a pensions advisor via MSE and that will be mid may when they can review all my pension stuff as I honestly don't have a clue what I am looking at (as with most of the general public!). So hopefully they will be able to advise on that?
Do you - or anyone else - think it is worth someone like me, who doesn't have  any real understanding or experience with finance having an IFA manage their affairs? I have been quoted £3000 upfront and then 0.75pa by an IFA who has been recommended to me, who would look after this for me.

polyp

xylophone said:

Had you considered making pension contributions?

Are you saying that you have £6000 in "relevant earnings" and supplement this from income from your lodgers?

Read below carefully.

https://www.mandg.com/pru/adviser/en-gb/insights-events/insights-library/tax-relief-members-contributions#:~:text=It's sometimes easier to think,7(2) ITEPA 2003)

Even if you have no relevant earnings, while under age 75, you may still contribute up to £2880 (net) to a personal pension and receive tax relief of up to £720.

If you have relevant earnings of £6000, you could pay up to £4,800 into a personal pension and receive tax relief of up to £1,200.

You could consider using your ISA allowance in a stocks and shares ISA as (potentially) a better hedge against inflation than all cash savings.

thank you for replying too...I replied to Polyp above and think this is going to be a repeat but...I am going to get pensions advice and am querying whether I should just use an iFA who will charge me (I think quite alot) to manage this for me. Is it possible that I will recoup these costs in savings she will make for me?
I will definitely read the link you have posted too. Thank you

eskbanker

polyp said:
My brother has done some figures based on the idea of a 7% investment rate, and the assumption that i would sell my house at the age of 65.

It's plausible to achieve 7% growth from investments, but only in a variable and volatile way, i.e. some years higher, some lower, and some negative, and if you're looking at not only drawing off the income but also some of the capital then that growth is obviously compromised.  Also worth considering the effects of fees and inflation in such models, if he hasn't already....

If you were to sell the house and buy another, how much capital would that release, after all costs, etc?

polyp

eskbanker said:

polyp said:
My brother has done some figures based on the idea of a 7% investment rate, and the assumption that i would sell my house at the age of 65.

It's plausible to achieve 7% growth from investments, but only in a variable and volatile way, i.e. some years higher, some lower, and some negative, and if you're looking at not only drawing off the income but also some of the capital then that growth is obviously compromised.  Also worth considering the effects of fees and inflation in such models, if he hasn't already....

If you were to sell the house and buy another, how much capital would that release, after all costs, etc?

I would hope to release about £200K given that £250 would buy a fairly decent flat on today's market where i live and £50K would be the expenses on that. I would happily consider equity release to stay here longterm but given that at some point I would probably have to sell, it isn't something I would do lightly.