Investment income projection

brodev

I am due to retire next year and I calculate that I'll have about £200,000 to invest. I will have a company pension and my OAP. What I would like to know is what income I could reasonably expect to get from the above lump sum assuming that I am prepared to take a chance of losing about 20% of the capital. I would like to know an initial income rising by about 3.5% per annum. Does anyone know of any websites that show this or can anyone give me some tips. I think I will have to consult aN IFA but I would like to go with some pre knowledge. TIA

dunstonh

5% is the usual figure that is quoted as guidence as an average. Depending on your risk profile (which have indicated), then taking 5% net and leaving the remainder in the investment so the fund grows and therefore gives you an increasing income is acheivable. Of course, there will be some volatility but it can be reduced/increased to suit you individually. The more you take out as income, the less the fund is likely to increase. You may want to decide the income on an annual basis depending on the previous years performance. Taking 5% and increasing by 3.5% could be done some years but other years it may not be achievable.

On that amount you will have to be wary of reductions in your age allowance. Deposit interest or dividend/income distributions would potentially reduce that. You may find that an investment bond is recommended in place of OEICS/UTs/ITs as withdrawals from that are not classed as income. Also, charges on bonds can be more favourable than those products. Indeed, given the amount you are looking at, you will almost certainly be able to achieve very good terms. Something like 107-108% initial allocation (with no initial charges).

There are other products that could be used but not knowing your circumstances, it could end up being a fairly long list.

EdInvestor

Charges are frequently a problem with investment bonds: see this table to check.

https://www.fsa.gov.uk/tables

If you are a basic rate taxpayer you might like to consider holding a portfolio of high yield shares directly, you can either take the dividends as tax free income (c.5%) or reinvest as appropriate ( reduce the amount taken to take tax considerations into account if necessary) .

Capital growth should be achieved to cope with the inflation side, particularly as if you hold the shares directly, you pay no charges.Such a portfolio would require very little attention and would act in much the same way as an equity income fund.

Commercial property unit trusts and and offshore trusts are another type of investment which pay a good yield in the 5.5-7% range and also offer capital growth which is currently easily exceeding inflation ( though this almost certainly will not last).They are regarded as medium risk, suitable for retired folk with a cautious risk approach.

dunstonh

Ignore ed. This is a good example of where someone with a little knowledge can do more harm than good.

1 - 200,000k on top of occ scheme pension and state pension could take the income above the age allowance threshold. Using high yield shares in that case, would reduce the age allowance causing an equivalent tax rate of around 33%.

2 - bonds do not have high charges unless you pick a crap bond. The charges are often lower than unit trusts and oeics. Indeed, more often than not they are. The fsa tables pick a default fund on default charges. Hardly anyone would be on one of those. Those tables are very misleading when taken out of context and when compared with unit trusts actually make bonds appear more favourable when looking at charges alone. With 200k, you would expect the reduction in yield in charges to be less than 1% a year. Indeed, over 5 years, its possible you would be looking at no charges in real terms and see a negative reduction in yield. You wont see that on the FSA tables which is why you cannot rely on them.

3 - Commerical property is one thing but inside unit trusts and you risk the same problem with the age allowance. Also commercial property funds in OEICs and ISAs are more expensive than inside Bonds. A bond on full commission will usually have lower charges than a Unit Trust on zero commission.

4 - Property funds are not regarded as medium risk. They are low/medium unless they have property shares where they start making their way up the scale. Aberdeen property share, for example, is extremely high risk.

brodev, you have a decent lump sum. You have a number of tax implications which will vary depending on your circumstances. You have risk, accessibilty, lump sum requirement and a bunch more to consider before actual products can really be discussed. Please do not rely on this site for financial advice as you can see from eds post that the information is so often incorrect and would potentially do more harm than good.

If you arent sure yourself, then seek independent financial advice. Ideally get a investment specialist, rather than say a mortgage specialist. Don't be afraid to question them on their experience in that area. If you think of a GP, you wouldnt go to them to have a heart operation. The same applies to financial advisors, you have GPs and specialists. GP will still be able to advise you but you would probably do better with an IFA whose core business is investments.

deemy2004

You could look at a High Yeild stock portfolio with dividend income of an average of 5% per year, which would grow annually in line with overall GDP growth, and likely capital growth also over the long-term.

Represents an excellant retirement model for those that want some risk as the aim is year on year rise in dividend income with the bonus of capital growth on top ! I.e. to apply against CGT allowances.

Its what I'm building for my retirement

brodev

dunstonh wrote:

You may find that an investment bond is recommended in place of OEICS/UTs/ITs as withdrawals from that are not classed as income.

I am not sure if I know what these are. Can you point me to any site that shows these bonds so that I can get an idea about them.
Many thanks for your suggestions. I have plenty of time and I am just doing the preliminaries at the moment.

brodev

deemy2004 wrote:

You could look at a High Yeild stock portfolio with dividend income of an average of 5% per year, which would grow annually in line with overall GDP growth, and likely capital growth also over the long-term.

I know that motley fool has an example of these but do you know of any other?

dunstonh

http://www.norwichunion.com/investment-bond/index.htm

That isnt a recommendation but they do explain the basics of the bond and what sort of funds are available to invest in. Ignore the terms and charges to some extent as you would get better terms than quoted if done through an IFA (unless you get a greedy one). Look at the documents down the right side which goes right into the small print if you desire.

You should also be aware that deemy's suggestion would potentially impact on your age allowance as well and therefore increase your tax liability. Its one thing getting you to retirement, its a different thing when you get there.

cheerfulcat

brodev wrote:

I am due to retire next year and I calculate that I'll have about £200,000 to invest. I will have a company pension and my OAP. What I would like to know is what income I could reasonably expect to get from the above lump sum assuming that I am prepared to take a chance of losing about 20% of the capital. I would like to know an initial income rising by about 3.5% per annum. Does anyone know of any websites that show this or can anyone give me some tips. I think I will have to consult aN IFA but I would like to go with some pre knowledge. TIA

Hi, brodev,

Here are some websites which you may find helpful :

Retirement calculators

http://www.pncbank.com/general/0,3810,3582,00.html#Retirement

Income from savings calculator

http://www.bankrate.com/brm/calc/svgs_income/savings_income.asp

Retire Early ( includes some very useful information about preserving capital, and links to further sites )

http://www.retireearlyhomepage.com/

An asset allocation calculator ( *very* handy )

http://www.dinkytown.net/java/AssetAllocator.html

The same site has a retirement income calculator

http://www.dinkytown.net/java/RetirementIncome.html

Retirement Investing on the Motley Fool

http://boards.fool.co.uk/messages.asp?mid=9465484&bid=50084

The calculators are US based so you will have to pretend that the $ is a £, and adjust the tax rates - they have both Federal and state taxes - so that they add up to your rate.

HTH

Cheerfulcat

EdInvestor

cheerfulcat wrote:

An asset allocation calculator ( *very* handy )

http://www.dinkytown.net/java/AssetAllocator.html

It's interesting to see that the Americans think it's entirely normal and appropriate for a 60 year old to have a retirement pot invested c. 50% in equities, 25% in bonds and 25% in cash, whereas in the UK everyone throws up their hands in horror at the very idea of doing this and forces everyone to buy an annuity!

The UK is quite astonishingly backward on this issue.

deemy2004

[QUOTE=dunstonh
You should also be aware that deemy's suggestion would potentially impact on your age allowance as well and therefore increase your tax liability. Its one thing getting you to retirement, its a different thing when you get there.[/QUOTE]


Cirkey now where worried we may have too much money in retirement... :rolleyes: :rotfl: