General advice for savings and investments of around £500k

What_time_is_it

Hi there. I’ve always had some great advice and a range of opinions when I’ve asked questions on here about strategies for saving and investing. So, here is an open ended question about what the best strategy would be for me and my partner to invest and save.

We have just over £500k between us from an inheritance a year ago. There is a further £100-£200k still to be realised on that front which should come through during the next 12 months.

We have no children and we own our house with no mortgage. We each have two pension schemes which we are paying into as much as allowable, and we would both like to retire in our 50s. We are both 48.

After the pension contributions, we currently have the rest of the money just in savings products. We have cash ISAs maxed out for both of us and then we split the remainder (about £350k+) between fixed term, regular savers, and instant access accounts. As I am not currently working we have also split the savings between us to maximise the tax efficiency.

I am conscious that we should be investing some of this rather than have it all in cash savings. But we are unsure where to start! Maybe open up S&S ISAs in April? And move our current ISAs into that? (Would be about £90k each)

How should we proceed? And is it worth speaking to an IFA or wealth manager?

dunstonh

We have no children and we own our house with no mortgage. We each have two pension schemes which we are paying into as much as allowable, and we would both like to retire in our 50s. We are both 48.

Are you sure you are paying in as much as is allowable?

The annual allowance is £60,000 a year or 100% of your income, whichever is lower (there is also the potential for carry forward, which could alter those figures. Plus, employer contributions can exceed the £60,000 if carry forward allowance is available).

I am conscious that we should be investing some of this rather than have it all in cash savings. But we are unsure where to start! Maybe open up S&S ISAs in April? And move our current ISAs into that? (Would be about £90k each)

Your objectives would need to be known.  The pension tax wrapper is more efficient than the ISA tax wrapper for most people (but not all).  So, if you have pension allowance available and the objective is post age 57, then pension would beat ISA.

How should we proceed? And is it worth speaking to an IFA or wealth manager?

DIY or IFA should be the choice.  Never an FA.  Wealth manager is not a protected term and can mean diferent things to different people.  Some firms have wealth management in their brand name or tag line from before it became a dirty phrase.   Some firms have a wealth management business model that is best avoided.  It would be unfair to criticise the former because of the latter's actions.       So, better to stick to the official classification of IFA and FA and avoid the latter.

Bostonerimus1

You seem to be doing quite well already so I'm not sure you need to spend money on financial advice when you obviously have the common sense and desire to DIY.  Are you sure you are maxing out both pensions and have you looked at SIPPs. You might be not taking enough risk and with no mortgage or kids and sizable assets and a desire to retire in your 50's you should probably be investing more in stocks and shares for greater long term growth. So:

Do a budget and project out how much money you need to meet your goals.
Pay off all high interest debt
Keep 6 months' to a year's spending in cash/easy access savings
Make extra contributions to pensions, in your case maybe a SIPP, invest in low cost index funds
Make contributions if a S&S ISA, invest in low cost index funds
Make contributions to a general investment account, invest in low cost index funds
Before you retire look at ways to generate regular income ie drawdown asset allocations and strategies, annuities and how they will compliment your pensions.

Here's a flow chart

https://ukpersonal.finance/flowchart/

What_time_is_it

Thanks for the reply.

Yes, we are paying into our pensions as much as is allowable. Our incomes are both considerably less than £60k a year. My partner will Sal Sal down to NMW and then make AVCs up to her annual income. I am now not working. I have around £12.5k of “unspent” salary and I will put £10k (plus tax relief) into a pension pot before April 5th. So, yes, maxing out pensions!

Objectives? Both retire as early as possible! I e wouldn’t start taking our pensions until after 57/58 at the earliest.

Thanks for clarifying those FA terms! I’d rather do it myself if I can learn enough, but I would be open to using an IFA if it is worthwhile.

What_time_is_it

Bostonerimus1 said:

You seem to be doing quite well already so I'm not sure you need to spend money on financial advice when you obviously have the common sense and desire to DIY.  Are you sure you are maxing out both pensions and have you looked at SIPPs. You might be not taking enough risk and with no mortgage or kids and sizable assets and a desire to retire in your 50's you should probably be investing more in stocks and shares for greater long term growth. So:

Do a budget and project out how much money you need to meet your goals.
Pay off all high interest debt
Keep 6 months' to a year's spending in cash/easy access savings
Make extra contributions to pensions, in your case maybe a SIPP, invest in low cost index funds
Make contributions if a S&S ISA, invest in low cost index funds
Make contributions to a general investment account, invest in low cost index funds
Before you retire look at ways to generate regular income ie drawdown asset allocations and strategies, annuities and how they will compliment your pensions.

Here's a flow chart

https://ukpersonal.finance/flowchart/

Thanks so much! That’s all really helpful.

We’ve got no debts and, yes, I would prefer to DIY this once I know that I have enough knowledge to trust myself!

it sound like the key thing we need to do is move some of the cash savings into investment products for the longer term. Would you recommend transferring all of our current cash ISAs into S&S ISAs? And which providers would you look at for both S&S ISAs and investment fund products?

Thanks again.

Albermarle

Thanks for clarifying those FA terms! I’d rather do it myself if I can learn enough, but I would be open to using an IFA if it is worthwhile.

As you are regular reader of the forum, you should have seen this question about using IFAs or not, coming up regularly.
There is no fixed answer, it is basically for you to decide.

it sound like the key thing we need to do is move some of the cash savings into investment products for the longer term. Would you recommend transferring all of our current cash ISAs into S&S ISAs? And which providers would you look at for both S&S ISAs and investment fund products?

Again these subjects are discussed very regularly on the forum. 
The actual provider of a S&S ISA or investments is not really that important compared to the asset allocation ( in simple terms the balance between equity, bonds, cash etc ) This is determined by your overall situation, objectives and risk tolerance. ( Basically this is what an IFA would do for you after asking lots of questions, often quite personal ones) 

It is a bit like thinking about what you want for dinner. Meat, or fish, or vegan etc.
Only when you have decided this, do you think about whether to go to Sainsburys or Tescos.

What_time_is_it

Thanks @Albermarle

i do read through some of the old posts and I am aware of some of the previous discussions.

in light of what you say about making choices, I suppose what I’d like to know, then, is what exactly are the questions! 

We want to retire as early as possible, have a comfortable but not lavish lifestyle (maybe c £30k a year between us after tax, something like that?), have no children, no mortgage, no debts, and we want to maximise our income that we can generate from the £500k (maybe rising to £600-£700k soon) that we currently have in cash investments. Our pension provision is ok-ish - using NRA assumptions we have workplace DB pensions of £5k pa and £11k pa respectively, plus DC pots of around £50k and £200k respectively, and we are maxing our our contributions.

What other things are relevant?
Not trying to be facetious here. I honestly don’t know!

eskbanker

I'd suggest some modelling across four phases:

1. Now to early retirement
2. Early retirement to workplace pension access age
3. Workplace pension access age to state pension age
4. State pension age onwards

and identify your projected annual income and expenditure in each of those, which might need further refinement to recognise different ages for the two of you.  If you're not working just now, you'd need to make planning assumptions about whether you will be returning to employment, together with income and duration.

Once you've done this, it should be reasonably clear how much reliance you'd be placing on your lump sum, and from that you can identify where best to put it, which could of course be a mix of saving and investing.

What_time_is_it

Thanks @eskbanker

i find this sort of thing hard to understand. We both come from families who did not engage with any financial prudence or strategy - just cash and credit cards and no interest in finding out anything else!

We’ve done some modelling as you suggest and we have a fair idea of how much we would need and at what time points. What we are struggling with is how best to use our large sum of cash in order to maximise returns, outpace inflation, minimise tax exposure, and allow us to draw an income when we need it. The one thing we know is that the current situation where it all in cash savings is not the best option!

Bostonerimus1

What_time_is_it said:

Bostonerimus1 said:

You seem to be doing quite well already so I'm not sure you need to spend money on financial advice when you obviously have the common sense and desire to DIY.  Are you sure you are maxing out both pensions and have you looked at SIPPs. You might be not taking enough risk and with no mortgage or kids and sizable assets and a desire to retire in your 50's you should probably be investing more in stocks and shares for greater long term growth. So:

Do a budget and project out how much money you need to meet your goals.
Pay off all high interest debt
Keep 6 months' to a year's spending in cash/easy access savings
Make extra contributions to pensions, in your case maybe a SIPP, invest in low cost index funds
Make contributions if a S&S ISA, invest in low cost index funds
Make contributions to a general investment account, invest in low cost index funds
Before you retire look at ways to generate regular income ie drawdown asset allocations and strategies, annuities and how they will compliment your pensions.

Here's a flow chart

https://ukpersonal.finance/flowchart/

Thanks so much! That’s all really helpful.

We’ve got no debts and, yes, I would prefer to DIY this once I know that I have enough knowledge to trust myself!

it sound like the key thing we need to do is move some of the cash savings into investment products for the longer term. Would you recommend transferring all of our current cash ISAs into S&S ISAs? And which providers would you look at for both S&S ISAs and investment fund products?

Thanks again.

You should read around and see how people allocate their portfolios. Some might keep a max of 10% in cash, some less, some more, it depends on personal preferences and circumstances. I would certainly not use as much cash/savings investments as you and put more into stocks and shares and in the UK DC pensions, SIPPs and ISAs are the best way to do that. But stocks and shares are riskier than cash investments and you need to know what you are doing and why and realize that there will be ups and downs and know how to react...or not react...when they happen.

Check out this thread and link for ISA providers. Stick with the low cost ones if you plan to DIY, but first understand about the various types of funds and asset allocation. .

https://forums.moneysavingexpert.com/discussion/6572733/best-platform-for-s-s-isa/p1
https://monevator.com/compare-uk-cheapest-online-brokers/

There are good guides on this site and also this one which advocates inexpensive passive investing which is what I do.

https://www.bogleheads.org/wiki/Investing_from_the_UK

Alistair31

700/30 = 23 years of your target income, takes you to your early 70’s. Your private pensions will be on by then as will your state pensions. Great position to be in, personally I wouldn’t be in a rush to throw it all into equities at this stage.