£150K to invest long term

polyp

OldScientist said:

polyp said:

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.
 

Just a couple of points.

1) At 55yo, you have (roughly) a 50% chance of living for another 30 years, and a 10% chance of living another 40 or so years (see life expectancy calculator at  https://www.ons.gov.uk/peoplepopulationandcommunity/healthandsocialcare/healthandlifeexpectancies/articles/lifeexpectancycalculator/2019-06-07 )

2) You could divide the retirement into two parts

a) Before state pension: You have 12 years until state pension, assuming you can park your money to provide a 0% real (you can, but for the moment let's not get bogged down in details) then over that 12 years, each £1k of inflation adjusted income will cost you £12k. Assuming you will continue with whatever activity brings in the £6k per year (is that in addition to airbnb and students?), adding another £10k of income (roughly the same as the state pension) for a total of £16k per year will cost you about £120k of your current nest egg (leaving about £30k+40k pension).

b) Post state pension: At 67, you'll probably need to plan for a lifetime of another 30 years or so. Investing in stocks and bonds in the UK has historically allowed an inflation adjusted withdrawal of between 3% and 3.5% of whatever funds you have invested at retirement. Assuming, you can downsize and get about £250k from your house and still have the £70k left over, you would have £320k which would allow an income of just under £10k per year in addition to the state pension of £10k.

This is all back of the envelope stuff and depends on a number of assumptions (not all of which are certainties).

Wow! Thank you for taking the time for you back of an envelope considerations that I wish I had a quarter of the capacity to understand than it took for you to do that!! You seem to be mirroring what my brother has said in his spreadsheet and so I can follow it sort of. I am hoping to god that I don't live to be in my 90s!! Makes me shudder to think it. My mum and dad both died in their 60s and a big part of me just wants to enjoy this cash and supplement my income and cross my fingers I don't live too long. It is funny how life seems so much less complicated without such worries which is a bizarre thing to say. But until now, I have never had money and not had to think about my future. Anyway...I am rambling on now. I will unpack your post later this evening and think on it properly. 
Meanwhile, I think what everyone is saying is that I need to spend some time and do some proper reading up about pensions and investment strategies and so on, which I agree with!!!

older_and_no_wiser

Hi @polyp
There a sad story here. You mention that you don't want to live too long. You're the same age as me within a few months and you mention you are single with no dependants. Is this the reason you have those views - that perhaps you have no one to share your future with? Again this is similar to me. I've just broken up from a 5+ year relationship and I planned a future with my partner which was a massive incentive for me to push a large proportion of my employment income into pensions and investments and retire early. Suddenly I've lost that future and it was a massive shock which I'm still getting over as it's very recent and raw still. 

I'm trying to remain positive and hoping I will find someone else when the time is right to have that future with. 

Best wishes to you and please try to be positive. Who knows what the future brings us but we'll pray it's good and long.

dealyboy

... and best wishes to you @older_and_no_wiser

polyp

older_and_no_wiser said:

Hi @polyp
There a sad story here. You mention that you don't want to live too long. You're the same age as me within a few months and you mention you are single with no dependants. Is this the reason you have those views - that perhaps you have no one to share your future with? Again this is similar to me. I've just broken up from a 5+ year relationship and I planned a future with my partner which was a massive incentive for me to push a large proportion of my employment income into pensions and investments and retire early. Suddenly I've lost that future and it was a massive shock which I'm still getting over as it's very recent and raw still. 

I'm trying to remain positive and hoping I will find someone else when the time is right to have that future with. 

Best wishes to you and please try to be positive. Who knows what the future brings us but we'll pray it's good and long.

Oh no!! I am so sorry. for both reasons, seeming like I don't want to live and also because I am so sorry you have been hurt and are sad. My words might have seemed ill-chosen for which I apologise. Life is tough and there are times when we are terribly hurt and it all seems a struggle; Please don't think I am belittling that, and also remember there are people who will always be willing to help - including on here, it seems!
I guess i just hate the thought that you might be too scared to live for the now because of the what if. I could go on a massive spending spree and maybe 20 years ago I would have. One the one hand, I am worried that this money will disappear, but on the other, I could die at my mums age with all this money unspent because i have been too scared to enjoy it. If only for that Crystal ball!!!

older_and_no_wiser

polyp said:

older_and_no_wiser said:

Hi @polyp
There a sad story here. You mention that you don't want to live too long. You're the same age as me within a few months and you mention you are single with no dependants. Is this the reason you have those views - that perhaps you have no one to share your future with? Again this is similar to me. I've just broken up from a 5+ year relationship and I planned a future with my partner which was a massive incentive for me to push a large proportion of my employment income into pensions and investments and retire early. Suddenly I've lost that future and it was a massive shock which I'm still getting over as it's very recent and raw still. 

I'm trying to remain positive and hoping I will find someone else when the time is right to have that future with. 

Best wishes to you and please try to be positive. Who knows what the future brings us but we'll pray it's good and long.

Oh no!! I am so sorry. for both reasons, seeming like I don't want to live and also because I am so sorry you have been hurt and are sad. My words might have seemed ill-chosen for which I apologise. Life is tough and there are times when we are terribly hurt and it all seems a struggle; Please don't think I am belittling that, and also remember there are people who will always be willing to help - including on here, it seems!
I guess i just hate the thought that you might be too scared to live for the now because of the what if. I could go on a massive spending spree and maybe 20 years ago I would have. One the one hand, I am worried that this money will disappear, but on the other, I could die at my mums age with all this money unspent because i have been too scared to enjoy it. If only for that Crystal ball!!!

Hey don't worry about it. Certainly no need to apologise and I get what you say now you've explained it. It's all a balance. Personally, I've always lived quite frugally in some areas. I value the money I earn and don't have expensive tastes although I drive a very nice new German car (paid for with cash)b and live in a nice property. I've never had any debt and only buy things I can afford now. I go on nice holidays when I can. Because of this lifestyle and that I have no dependants I can lock a lot of money away for my future. I'm really positive for the future (still!) as I live a very healthy and active life. Don't drink or smoke, play lots of tennis and squash. Plenty of walks. I'm banking of living a long time but one never knows!

The only thing I do know is that I need/want someone to share that future with. All the money in the world is useless (to me) without someone to enjoy it with. 

Remaining positive though. Onwards and upwards....

polyp

older_and_no_wiser said:

polyp said:

older_and_no_wiser said:

Hi @polyp
There a sad story here. You mention that you don't want to live too long. You're the same age as me within a few months and you mention you are single with no dependants. Is this the reason you have those views - that perhaps you have no one to share your future with? Again this is similar to me. I've just broken up from a 5+ year relationship and I planned a future with my partner which was a massive incentive for me to push a large proportion of my employment income into pensions and investments and retire early. Suddenly I've lost that future and it was a massive shock which I'm still getting over as it's very recent and raw still. 

I'm trying to remain positive and hoping I will find someone else when the time is right to have that future with. 

Best wishes to you and please try to be positive. Who knows what the future brings us but we'll pray it's good and long.

Oh no!! I am so sorry. for both reasons, seeming like I don't want to live and also because I am so sorry you have been hurt and are sad. My words might have seemed ill-chosen for which I apologise. Life is tough and there are times when we are terribly hurt and it all seems a struggle; Please don't think I am belittling that, and also remember there are people who will always be willing to help - including on here, it seems!
I guess i just hate the thought that you might be too scared to live for the now because of the what if. I could go on a massive spending spree and maybe 20 years ago I would have. One the one hand, I am worried that this money will disappear, but on the other, I could die at my mums age with all this money unspent because i have been too scared to enjoy it. If only for that Crystal ball!!!

Hey don't worry about it. Certainly no need to apologise and I get what you say now you've explained it. It's all a balance. Personally, I've always lived quite frugally in some areas. I value the money I earn and don't have expensive tastes although I drive a very nice new German car (paid for with cash)b and live in a nice property. I've never had any debt and only buy things I can afford now. I go on nice holidays when I can. Because of this lifestyle and that I have no dependants I can lock a lot of money away for my future. I'm really positive for the future (still!) as I live a very healthy and active life. Don't drink or smoke, play lots of tennis and squash. Plenty of walks. I'm banking of living a long time but one never knows!

The only thing I do know is that I need/want someone to share that future with. All the money in the world is useless (to me) without someone to enjoy it with. 

Remaining positive though. Onwards and upwards....

Indeed. Always look forwards and not back. I wish you luck and love in the future. Meanwhile…spring is definitely here and warm weather is coming which always makes things seem brighter! All the best. 

OldScientist

polyp said:

OldScientist said:

polyp said:

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.
 

Just a couple of points.

1) At 55yo, you have (roughly) a 50% chance of living for another 30 years, and a 10% chance of living another 40 or so years (see life expectancy calculator at  https://www.ons.gov.uk/peoplepopulationandcommunity/healthandsocialcare/healthandlifeexpectancies/articles/lifeexpectancycalculator/2019-06-07 )

2) You could divide the retirement into two parts

a) Before state pension: You have 12 years until state pension, assuming you can park your money to provide a 0% real (you can, but for the moment let's not get bogged down in details) then over that 12 years, each £1k of inflation adjusted income will cost you £12k. Assuming you will continue with whatever activity brings in the £6k per year (is that in addition to airbnb and students?), adding another £10k of income (roughly the same as the state pension) for a total of £16k per year will cost you about £120k of your current nest egg (leaving about £30k+40k pension).

b) Post state pension: At 67, you'll probably need to plan for a lifetime of another 30 years or so. Investing in stocks and bonds in the UK has historically allowed an inflation adjusted withdrawal of between 3% and 3.5% of whatever funds you have invested at retirement. Assuming, you can downsize and get about £250k from your house and still have the £70k left over, you would have £320k which would allow an income of just under £10k per year in addition to the state pension of £10k.

This is all back of the envelope stuff and depends on a number of assumptions (not all of which are certainties).

Wow! Thank you for taking the time for you back of an envelope considerations that I wish I had a quarter of the capacity to understand than it took for you to do that!! You seem to be mirroring what my brother has said in his spreadsheet and so I can follow it sort of. I am hoping to god that I don't live to be in my 90s!! Makes me shudder to think it. My mum and dad both died in their 60s and a big part of me just wants to enjoy this cash and supplement my income and cross my fingers I don't live too long. It is funny how life seems so much less complicated without such worries which is a bizarre thing to say. But until now, I have never had money and not had to think about my future. Anyway...I am rambling on now. I will unpack your post later this evening and think on it properly. 
Meanwhile, I think what everyone is saying is that I need to spend some time and do some proper reading up about pensions and investment strategies and so on, which I agree with!!!

No problem.

I know what you mean about longevity - both my parents died in their early 60s too before they had a chance to properly enjoy retirement. There is some evidence (https://ilcuk.org.uk/wp-content/uploads/2018/10/Understanding-Retirement-Journeys.pdf ) that UK retirees spend less as they get older, so spending more when younger and healthier may make sense, but does mean that there will be less to spend later on. So, building in extra expenditure early on can be planned for even over a potentially long retirement.

One approach is to ensure that essential spending (how this is defined will vary from person to person - there are some very frugal people on this board) is covered by lifetime guaranteed income (e.g. state pension, inflation linked annuities, etc.) leaving discretionary spending to be covered by investments. This is one reason why trying to get a good handle on your expenditure (as others have suggested) is a good first step.

Albermarle

I am hoping to god that I don't live to be in my 90s!! Makes me shudder to think it. My mum and dad both died in their 60s 

You might think differently if you reach 89 and not too many ailments .

Realistically you can only plan financially around statistical averages for longevity, despite your own family experiences.

So you have a 50% chance of reaching around 83, which means you have a 50% chance of living longer. In fact if you have no life limiting conditions, do not smoke or drink heavily, are reasonably fit, have money, educated and live in a nice area, maybe can afford private medicine etc your chances of living longer are significantly better than average. In this case reaching your Nineties is a distinct possibility.

There is some evidence (https://ilcuk.org.uk/wp-content/uploads/2018/10/Understanding-Retirement-Journeys.pdf ) that UK retirees spend less as they get older, so spending more when younger and healthier may make sense, but does mean that there will be less to spend later on.

This has been debated on here a few times and there can also be an increase in spending as you get even older. On care costs for example.

OldScientist

Albermarle said:

I am hoping to god that I don't live to be in my 90s!! Makes me shudder to think it. My mum and dad both died in their 60s 

There is some evidence (https://ilcuk.org.uk/wp-content/uploads/2018/10/Understanding-Retirement-Journeys.pdf ) that UK retirees spend less as they get older, so spending more when younger and healthier may make sense, but does mean that there will be less to spend later on.

This has been debated on here a few times and there can also be an increase in spending as you get even older. On care costs for example.

I would agree that the evidence is not entirely clear cut ( see report at https://ifs.org.uk/publications/how-does-spending-change-through-retirement-0 which comes to a different conclusion from similar data)

e.g., from that report, "The composition of spending changes as people age, with per-person spending on food inside the home and on motoring falling steadily, spending on holidays increasing up to age 80 and then decreasing, and spending on household services (which includes spending on home help and domestic cleaning) and household bills increasing in later years of retirement."

Care costs are frightening, currently between £3k-£4k per month for residential care (e.g., see https://www.carehome.co.uk/advice/care-home-fees-and-costs-how-much-do-you-pay ) and given the average stay is just over 2 years (see quite an old report from 2011, https://eprints.lse.ac.uk/33895/1/dp2769.pdf ) then the total cost is, on average, about £80k (just under the cap!). There's an interesting article at https://www.unbiased.co.uk/discover/personal-finance/family/long-term-care discussing the various options for funding care.

polyp

Thank you again for taking the time to reply to my question. I have spent a few days with my head under the covers hiding from thinking about this but must get on with something
 I will begin tomorrow on researching and use the links on here. Maybe an IFA is the most sensible way for me to go, but I am loath to pay their high fees for what seems so little. Again, apparently there are forum threads on this very topic that I should read too! Which I will…