General advice for savings and investments of around £500k

eskbanker

Money that you're going to need to access within, say, three to five years would be best kept in cash deposit form, using a mix of whatever regular savers, easy access, notice and fixed term accounts you're prepared to manage to optimise returns.

Beyond that, money needed later can be invested.

If you're already maxing pension and ISA wrappers, then you are going to face tax liabilities if you're earning enough interest or investment income - you might choose to buy premium bonds if you're determined to avoid tax but it's generally better to maximise net returns rather than minimising tax as such.

What_time_is_it

Thanks @Bostonerimus1

That kind of “this is what I chose to do” response is exactly what I am looking for.

I’ll read those guides - thanks. The one thing I am certain of is that I don’t know anywhere near enough about all this!

What_time_is_it

Thanks @Alistair31

I think we are in a great position too. I am wary about squandering it! I want to make sure that we capitalise on our good fortune.

kempiejon

What_time_is_it said:

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

Huh? Retire as early as possible means you need to make provisions for income before you can get at your pensions at 57/58. I didn't bother too much with maximising my SIPP until late 40s, prior that it was filling ISAs or LISAs, I took employer pensions but didn't over pay. 10 years back investment dividend income wasn't tax for 20% payers and capital gains allowances were 5 figures.
I gave up work for a a year or so in my 30s and again in my 40s and my investments sustained that.
No mortgage, no kids, no debt, DB pensions to come, state pension too?
You mentioned wanting £30k - but where do you estimate you will spend that money?
A comprehensive budget will give you a number for a base line subsistance cost and you add in wants and indulgencies.
Retiring early means you investmens will have to keep growing and throwing off profit/income for 30 plus years which means the more cash you have the less work your money is doing. Without a job and monthly income I decided to balance my funds to hold two years of expected living expenses as savings cash and Premium Bonds and then a mix of mostly equtiy with a bit of corporate bonds, gilts, gold.
Get a plan, I wrote mine down, include with a timeline and periodic reviews, an evoling spreadsheet and the use of online calculators like https://firecalc.com/ there are others.

Perhaps with what you have you could retire today, it's a stronger position than I'd need but there are lots of varibles like property capital, a working SO, where to live and what do do.

Bostonerimus1

What_time_is_it said:

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!

Time to do a spreadsheet.

Map out how much "guaranteed" income you'll have coming in and when. ie defined benefit pensions, state pensions etc and then take that off what you need to live on each year, this will give you the amount your portfolio needs to generate. You will have to factor in inflation. If we are working in todays money and you need £30k after tax...so maybe £35k before tax and you might get 2 x SP and those DB pensions that is a total of £39k so you are golden. With a portfolio of £700k generating 4% interest in a guaranteed saving account that would give you another £28k. So there is an argument that you will be just fine staying in saving accounts and cash ISAs. There's never a straight forward answer, it's all couched in what ifs and caveats. I've found that after securing a guaranteed base of income to live off I am fine investing everything else in stocks and shares becuase I can afford to lose it. I think you are in a similar situation given your budget and SPs and DB pensions, but you might feel that you don't need or want to do that.

What_time_is_it

Thanks again.

Yes, we’ve done the calculations about how much we need and when we would need it, taking into account at what point we would be able to draw on workplace and private pensions and the state pensions.

That side of the equation is fairly clear. It’s the other side that we need help on - how to ensure that we maximise the fortunate position we have found ourselves in and capitalise on the large amount of cash we have to give us the highest possible income level and allow us to retire as early as possible. 

The difficulty we have is in striking the right balance between cash savings and investments.

What_time_is_it

kempiejon said:

What_time_is_it said:

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

Huh? Retire as early as possible means you need to make provisions for income before you can get at your pensions at 57/58. I didn't bother too much with maximising my SIPP until late 40s, prior that it was filling ISAs or LISAs, I took employer pensions but didn't over pay. 10 years back investment dividend income wasn't tax for 20% payers and capital gains allowances were 5 figures.
I gave up work for a a year or so in my 30s and again in my 40s and my investments sustained that.
No mortgage, no kids, no debt, DB pensions to come, state pension too?
You mentioned wanting £30k - but where do you estimate you will spend that money?
A comprehensive budget will give you a number for a base line subsistance cost and you add in wants and indulgencies.
Retiring early means you investmens will have to keep growing and throwing off profit/income for 30 plus years which means the more cash you have the less work your money is doing. Without a job and monthly income I decided to balance my funds to hold two years of expected living expenses as savings cash and Premium Bonds and then a mix of mostly equtiy with a bit of corporate bonds, gilts, gold.
Get a plan, I wrote mine down, include with a timeline and periodic reviews, an evoling spreadsheet and the use of online calculators like https://firecalc.com/ there are others.

Perhaps with what you have you could retire today, it's a stronger position than I'd need but there are lots of varibles like property capital, a working SO, where to live and what do do.

Thanks.

The  £30k figure is the result of us calculating (in today’s money) what we would need on average over a year for everything, including an “emergency” surplus.

We fully understand that retiring before we draw from our pensions means that we need to make provisions for the years before that… that is exactly what we are trying to do and is kind of the underlying question of this threat! I.e. we are planning for the rest of our lives and understand that we will need to access different pots of money at different times and we want to maximise our income levels that we can get from our current savings.

Albermarle

What_time_is_it said:

Thanks again.

Yes, we’ve done the calculations about how much we need and when we would need it, taking into account at what point we would be able to draw on workplace and private pensions and the state pensions.

That side of the equation is fairly clear. It’s the other side that we need help on - how to ensure that we maximise the fortunate position we have found ourselves in and capitalise on the large amount of cash we have to give us the highest possible income level and allow us to retire as early as possible. 

The difficulty we have is in striking the right balance between cash savings and investments.

The other difficulty is what kind of investments?
Most people hold a mix of equity and bonds. The more equity the more potential long term growth, but more ups and downs on the way. Bonds/Gilts are more stable ( usually) so although they will not grow that much, in theory they should dilute the trauma of a big stock market crash when it happens. The classic ratio is 60;40 which is classed as medium risk, but can be any proportion you like. 
If you have a lot of cash, then it makes sense to go higher on the equity in the investments, if your nerves can stand it.

Another issue to watch is tax.
For example when you retire you will presumably have no taxable income until your occupational pensions kick in. This means you are 'wasting' your personal allowance, maybe for a few years, so if you have DC funds this can be a good time to take some taxable income from them, as up to £12570, it will not actually be taxed. 

kempiejon

What_time_is_it said:

The  £30k figure is the result of us calculating (in today’s money) what we would need on average over a year for everything, including an “emergency” surplus.

We fully understand that retiring before we draw from our pensions means that we need to make provisions for the years before that… that is exactly what we are trying to do and is kind of the underlying question of this threat! I.e. we are planning for the rest of our lives and understand that we will need to access different pots of money at different times and we want to maximise our income levels that we can get from our current savings.

I suggested you could get a base cost of living, as well as your would-like including emergency £30k. That makes retirement as soon as possible clearer. If you would like £30k per year you're all set from 67 with state pension and DBs.
DBs at 57 give you £16k pa so half way there. You also have £250k so in DCs you to bridge that 10 year gap you can have £30k pa and a bit left over.
At 48 with £500k inheritance and 10 years until DCs your £30k a year leaves you a balance of £200k.
Look out for inflation but doesnt it look a bit like you can retire now?
If th expected £1/200k extra inheritance comes along add that to the mix too

Investing £500k, well here's a handful of thoughts. Between the 2 of you £100k premium bonds. £20k each April leaves £360k at risk of tax so perhaps low couplon gilts could be an idea. I'd rather pay the tax on larger gains and equities are a route for that, like the oft mentioned global trackers. One could balance add some impression of safety with some governement debt bonds or gold. If youd like someone else to do the stokpicking and balancing perhaps a wealth preserver investment trust to pick 2 at random I've heard of and at first glance aren't crazy are  F & C Investment Trust or Alliance Witan plc?
Some investors like to harvest dividends (taxed at only 7.5%) rather than sell down and pay capital gains (18%) so a particular fund that thows of an income is nice, Vanguard offer to track a global high dividend index and the Vngrd FTSE All-Wld Hgh Div Yld UCITS ETF VHYL would give about 3% per year to begin with. That's half what you want. Add the extra expected inheritance and you can top that up to £30k for 7 years and check again.

And as a tiny niggle income and capital gains are treated differently for tax and I find is useful to think of capital gains and dividend as different ways of making an income. Savings is what one does with cash - I think of as defered spending. Investing is what one does to generate wealth using income and capital gain, putting your money to work in other assets than cash.

There's a lot to work out but you can retire today if you're careful and try not be unlucky.

What_time_is_it

Thanks @Albermarle

We’ve been working on the principal that our tax free £12,570 would be used up on savings interest. Presumably income from investments is taxed in a different way though (CGT?) so it’s a good point and one that we obviously have to consider.

Equity vs Bonds is another really good point and an area I need to learn more about. Thanks for the heads up on a basic 60/40 starting point. I will look into this more.