Pensioner with £90k assets - what does she do?

HeWhoDares

I'm requesting you advice.
My Mum is a pensioner and due to circumstance has now sold her property and has £90k in her savings account.

She is deciding to rent - approx rate is £600pcm - and has the lump sum to effectively live off for the rest of her life. She is a pensioner on state benefit only and has a part time job in a store for extra cash.

I want to advise her on the best way to utilise the £90k. My initial view is to put it into as whatever high-interest, low tax savings account she can and use the annual interest to clear as much rent as she can. If in the first year she uses £7.2k to clear her first year rent, what is the best way for her to maximise the interest she can earn so she can (hopefully) clear the following years rent by using interest earned?

Any other ideas are welcome.

Many thanks for your help.

indierocker85

Hi there,

Firstly, have her utilise her ISA allowance and put away £3,000 of it into the highest payer, which I think is NS&I at the moment.

Secondly, have her open a high interest current account for the remaining £87,000 to sit in (not for good mind), I think the highest payer at the moment is about 6.4%.

Now lastly, I would suggest her using a regular savers account (drip fed via direct debit from the high interest current account so the remaining balance still eanrs well), Think the highest payer that I am aware of was abbey at just under 10%, not sure of conditions on it, think the usual max you can save is £250 a month, though YBS were allowing up to £500 a month but pay less.

Or she could perhaps consider a yearly bond, and pay the rent with whatever it earns. Or a monthly income bond perhaps,

Hope this helps

jamesd

What state benefits does she get? Having 90k in savings and investments or the income from them may mean that she no longer qualifies for some she is claiming.

She'll need to use investments or perhaps buy an annuity with some of the money. She should be looking for an IFA (which excludes asking all banks and building societies, because they don't have IFAs). Depending on her age and health she is likely to receive significantly more income from an annuity than from savings accounts. A 70 year old woman might get 4850 a year from an annuity with the amount increasing with RPI inflation so it doesn't decrease in value over time. One without inflation increases might pay 7100 a year. Any medical conditions which reduce her life expectancy (including being overweight or smoking) can significantly increase those numbers. A savings account paying 6.5% would provide 5850, well below that 7100 with no inflation adjustment. But the annuity does lose access to all of the capital that's used to buy it.

seven-day-weekend

How old is your mum? You say she has a part-time job. And where exactly does her income come from? Is it a State Pension or is it means-tested benefits?

This is important to know as she will lose her entitlement to means-tested benefits if she has £90k capital.

Aegis

indierocker85 wrote: »

Secondly, have her open a high interest current account for the remaining £87,000 to sit in (not for good mind), I think the highest payer at the moment is about 6.4%.

Most current accounts that give that much interest require a salary to be paid into the account (or a minimum of £1000 per month, or something like that) and will only pay significant interest on values up to £2500. You need something better than a standard interest-bearing current account for this amount of cash, preferably 2 or 3 accounts spread over as many financial institutions to make sure that the money stays safe.

On the next issue of NS&I index-linked savings certificates, up to £30000 could be put into those (I think others have detailed how to do this despite the usual £15k per issue limit). This is a fully guaranteed and Treasury backed product, and is the only product that I know of which is therefore totally safe AND guaranteed to outperform inflation.


To the original poster: achieving gains of 8% on the 90k lump sum would not be an easy task while staying risk free, and I doubt you will find a satisfactory solution here. The best bet would be to go and see an Independent Financial Adviser and get the capital sum into a portfolio of investments or an annuity that will grow at or above inflation levels and also distribute a reasonable sum of income. If you only live off the interest and there is no capital growth, then 5 or 10 years down the line, inflation will have eaten away at the true value of both the stored capital and the interest stream. If this is all your mum has to live off for the rest of her life, she's going to need some professional help to make it last as long as possible.

dunstonh

It's possible to get 8.52% yield at the moment on fixed interest funds but of course they are not risk free. Low risk but still have a risk. That said, you need to utilise some of that ideally to protect from inflation.

There is also the issue of benefits, pension credits (possibly), age allowance and tax to go with the risk profile.