Hello - newbie and a few questions

 Good afternoon

I will apologise up front as I have a few questions/queries/advice required.

My husband and I are planning to retire within the next 4 years. Between us we have a decent pension but we also want to have a lump sum in the bank as well for extras etc. 

When we retire we will initially have our work pension, followed by one state pension 3 years later and the second 18 months after that.

So here is my dilemma

For the last few years we have been building our personal savings back up after spending all but a couple of £k on renovating our house. As the interest rates were so low we happily started accruing the monies in Premium Bonds. H has the full £50k now and I was working on mine but recently decided to move the monies I had into two 1 year fixed rate bonds, so to that end we have now maxed out our personal tax allowance for interest.

On average we save a minimum of approx. £2k per month and sometimes it can be a bit more so now I am trying to decide whether to start adding back into my PBs bearing in mind I will have to have somewhere to put the money when the fixed rate bonds mature. I think that by the time they mature I won't have too much room left in my PBs.

I know most will be shouting don't put the monies in PBs but we do like them. Also added to that when H retires his pension will also pay him a lump sum so again I have to find somewhere to put that. Also at our age we are (well tbh we always have been) a bit risk averse so probably would not invest in stocks and shares ISAs.


So what I am wondering is do I open a fixed rate ISA for say 3 years in case interest rates start dropping, so that I have somewhere to put the monies in the bonds when they mature.

I need to decide this evening in case I am putting this months savings in to PBs :smiley:




 
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Comments

  • Brie
    Brie Posts: 9,251
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    Well if it was me I'd def be putting the £ into the PBs!!!  Completely safe and accessible and you might just win a bit too.

    I do want to question though if you have quite a nice amount of cash laying about why you might take lump sums from your pensions?  I would look at what they would pay out if the LS wasn't taken and in particular how the payments might continue if the person that "owns" the pension should die.  If he falls off his perch will there still be enough money for you to live on?  Also if either of you need care is it to your advantage to have large amounts of cash available?  
    "Never retract, never explain, never apologise; get things done and let them howl.”
  • Albermarle
    Albermarle Posts: 21,067
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    On average Premium Bonds pay around 3.8% tax free ( with a miniscule chance of a big prize). Prizes are tax free.
    Fixed rate savings accounts of one to five years are paying above 5% . No tax if a cash ISA. Potentially taxable outside an ISA.
    Probably ( nobody knows for sure) interest rates and the PB prize rate will slowly drop over the next year or two.
    So some money in a longer term fixed rate potentially seems a good move.

    You do not say what kind of pensions you both have . Are they Defined Benefit ( sometimes called Final Salary) schemes with a guaranteed annual income, or Defined Contribution schemes where there is an actual pot of money usually invested in the financial markets.

    As the previous poster mentioned having too much in cash, taking lump sums etc is often not the best way but it hinges to some extent on what kind of pensions you have ( apart from the State pensions). You might be better ploughing this £2k per month into a pension whilst you are still working.

    Also at our age we are (well tbh we always have been) a bit risk averse so probably would not invest in stocks and shares ISAs. If you are 60 on average you will live another 25 years. Over that time period it is almost certain that investments will beat cash savings, so in fact saving in cash is more risky, especially due to the effects of inflation.


  • H is on final salary and the lump sum is automatic, we have the option to take a larger lump sum which we are not doing. Mine will not be a massive pension as didn't work when we had children and whilst I have the option to take a lump sum I am not going to as we plan to have a lump sum in savings. I should mention we paid off our mortgage which is why we are able yo save a decent amount each month. In the event one of us goes then the other would get half the others pension. 
  • Forgot to say whilst mine is not final salary it is for life and I do not have to purchase an anuity. 
  • Albermarle
    Albermarle Posts: 21,067
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    So with one final salary pension and two state pensions to come, you have a significant amount of guaranteed income.
    Then you have cash savings and lump sum to come.
    So usually it is all about balance. Guaranteed income + Cash + investments 
    So probably you should not dismiss S&S ISA's . You do not have to pick racy investments, there are plenty of low cost medium risk funds that historically have produced a better return than cash. Although at the moment cash savings fixed rates do look quite attractive, that will very likely not continue for the next 10,20, 30 years.
  • I’m a carer and have been for 10 years.
    Im used to living on very little. This year £76.75 a week. 4k a year.
    I do not have any costs, as live with the person I care for.
    Rent, food, car costs covered by them.
    I sold my house putting money in three fixed term accounts.
    5 years at 5%, 5 years at 4.85% and 7 years at 4.5%.
    Plus 2 isa’s and easy access for emergencies.
    Plus £24,600 in 7 regular savers at 6,7,7,7,7.5 and 8%.
    I can now live like a king. 

    No tax as low income.
    No private pension, but will get a State pension.
    I now have 4 times the income, for 5 years.
    I struggle to spend 4k a year so will save at least 10k of the interest each year.
    I like the certainty of fixed rates rather than the premium bonds risk.
    With an isa I look for the access penalty.
    M&S have a good 2 year fixed rate with a £75 fee for early access.
    Not the best rate but if you think you will need access it evens out.

    https://bank.marksandspencer.com/save-invest/cash-isa/


  • Johnjdc
    Johnjdc Posts: 343
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    So what I am wondering is do I open a fixed rate ISA for say 3 years in case interest rates start dropping, so that I have somewhere to put the monies in the bonds when they mature.



     

    Do you mean move money from PBs to ISA to free up your "headroom" for PBs?

    Or do you mean open ISA so that you have somewhere to put the bond money (i.e. in the ISA) when it matures?

    In the latter case, you need to check the T&Cs to make sure you don't end up with an ISA which only accepts deposits for the first however many days (as many do) if the maturity date of the bonds is further away than that many days.
  • Either really, was thinking of somewhere to move any excess after filling up PB's. By the time the FRB matures there won't be enough room in my PBs for all of it so need yo look for another rax efficient vehicle 
  • Just remember you only have a limited time window to put money in a fixed rate cash ISA.  If you open one now and only put £1,000 your ability to put the other £19k will be limited to around 28 days depending on the provider.  If you want to secure the interest rate you're best off using your premium bond money to open it then top up your premium bonds when you get your lump sum
  • drphila
    drphila Posts: 283
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    Just remember you only have a limited time window to put money in a fixed rate cash ISA.  If you open one now and only put £1,000 your ability to put the other £19k will be limited to around 28 days depending on the provider.  If you want to secure the interest rate you're best off using your premium bond money to open it then top up your premium bonds when you get your lump sum

    With a few exceptions such as Barclays and Shawbrook
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