No idea what to do with £300K!

MrandMrsB · 5 June 2011 at 1:02AM

Bet your hearts bleed for us. Before you start thinking we are spoilt rich folk, read on: when I met my husband less than 20 years ago, I had negative equity in my small cottage and was living in poverty, and he had paid off his ex-wife's debts by living very frugally in a tiny cottage. Never give up if you find yourself in a difficult financial position!

I am very careful with money and was probably using Martin's money tips long before he thought of them, so by some miracle we have managed to save money (even though my husband's pay was very poor for a professional person), I made money out of property, received a legacy and we will receive a much larger legacy very soon.

Obviously we have no debts or mortgage, and own a house that's worth £500K (ish) because we bought at the very bottom of the market.

My husband (late 60's) has just retired without the benefit of an occupational pension, and I am not working now as I have health problems that are improving (I'm mid 50's), and I have been helping charities. We intend to work very part-time from home next year, if necessary. My hubby's state pension (including allowance for me) and small personal pension is just enough for the basics, (obviously we pay council tax), and he pays a small amount of income tax (I am not using all my tax allowance at present). We do not have enough income from our current pensions to maintain our home / very large garden.

We also have a private pension pot of nearly £100K: again we saved this by going without meals out, holidays, new clothes, TV, etc, etc.

What do we do with the £300K to provide an income to maintain our home and to cover inflation? (Our personal inflation is higher than average.) This money and my state pension will have to last me for the rest of my life, and the rest of my family have lived into their mid-90's (so that could be 40 years!). My attitude to risk is cautious.

We feel that once we receive the legacy we will be able to spend a bit more and it's time to have fun. We are also going to have some urgent repairs and improvements done on our house and employ a chap to blitz our unruly garden. Also help our son who has recently moved to his own flat.

The rest needs to be saved. Obviously we are very concerned about inflation eroding our capital / income. We have 7 years of cash ISAs each, a 3-month notice high interest savings account, an instant access account and a regular saver account.

Do we take the pension annuity now or keep it intact as a "life assurance policy" in case my husband passes away before me? (The rates if 100% passes to me, are pathetic.)

We saw a financial advisor this week who thought we should invest the ISAs (c£60K plus our investment ISA allowances for this year) in some kind of investment wrapper - to be honest I do not understand it fully yet. He has asked us to read "The Investment Answer" by Goldie and Murray which has apparently influenced his investment philosophy. We have not read it yet, and wonder what other people think of it. He thinks we should leave the pension pot (which is in "cash") intact at present.

I look after our money since everything I touch seems to turn to gold but when "he" touches anything it turns to dust!!

Any thoughts much appreciated. Thank you for reading this. Sorry it's so long, but it saves asking lots of questions later. xxxxxx

MichaelCR · 5 June 2011 at 1:34AM

MrandMrsB wrote: »

Bet your hearts bleed for us. Before you start thinking we are spoilt rich folk, read on: when I met my husband less than 20 years ago, I had negative equity in my small cottage and was living in poverty, and he had paid off his ex-wife's debts by living very frugally in a tiny cottage. Never give up if you find yourself in a difficult financial position!

I am very careful with money and was probably using Martin's money tips long before he thought of them, so by some miracle we have managed to save money (even though my husband's pay was very poor for a professional person), I made money out of property, received a legacy and we will receive a much larger legacy very soon.

Obviously we have no debts or mortgage, and own a house that's worth £500K (ish) because we bought at the very bottom of the market.

My husband (late 60's) has just retired without the benefit of an occupational pension, and I am not working now as I have health problems that are improving (I'm mid 50's), and I have been helping charities. We intend to work very part-time from home next year, if necessary. My hubby's state pension (including allowance for me) and small personal pension is just enough for the basics, (obviously we pay council tax), and he pays a small amount of income tax (I am not using all my tax allowance at present). We do not have enough income from our current pensions to maintain our home / very large garden.

We also have a private pension pot of nearly £100K: again we saved this by going without meals out, holidays, new clothes, TV, etc, etc.

What do we do with the £300K to provide an income to maintain our home and to cover inflation? (Our personal inflation is higher than average.) This money and my state pension will have to last me for the rest of my life, and the rest of my family have lived into their mid-90's (so that could be 40 years!). My attitude to risk is cautious.

We feel that once we receive the legacy we will be able to spend a bit more and it's time to have fun. We are also going to have some urgent repairs and improvements done on our house and employ a chap to blitz our unruly garden. Also help our son who has recently moved to his own flat.

The rest needs to be saved. Obviously we are very concerned about inflation eroding our capital / income. We have 7 years of cash ISAs each, a 3-month notice high interest savings account, an instant access account and a regular saver account.

Do we take the pension annuity now or keep it intact as a "life assurance policy" in case my husband passes away before me? (The rates if 100% passes to me, are pathetic.)

We saw a financial advisor this week who thought we should invest the ISAs (c£60K plus our investment ISA allowances for this year) in some kind of investment wrapper - to be honest I do not understand it fully yet. He has asked us to read "The Investment Answer" by Goldie and Murray which has apparently influenced his investment philosophy. We have not read it yet, and wonder what other people think of it. He thinks we should leave the pension pot (which is in "cash") intact at present.

I look after our money since everything I touch seems to turn to gold but when "he" touches anything it turns to dust!!

Any thoughts much appreciated. Thank you for reading this. Sorry it's so long, but it saves asking lots of questions later. xxxxxx

You could very kindly deposit £100k into my bank account

?

uk1 · 5 June 2011 at 8:05AM

MrandMrsB wrote: »

Any thoughts much appreciated. Thank you for reading this. Sorry it's so long, but it saves asking lots of questions later. xxxxxx

Hi, a great and sensible post. Good luck with your explorations.

Your advisor may have suggested the pamphlet (it's not really long enough to be called a book) because he wants you to pay him a fee rather than him receive a commission ..... one of the core recomendations of the pamphlet.;)

May I suggest that before you start the process of deciding where to invest you should ask yourself some more fundamental questions. The answers to these might lead you to some clearer ways forward.

Firstly, how happy are you to invest or speculate with your pot? Actually being retired would lead many to prefer to have all investments in reasonably safe places ie cash so that the capitial was not at risk at all.

Could you cope with seeing the value of your fund fluctuate both down as well as up without worrying about it? Eating out more might not be enough compensation if you are a worrier. A more cautious approach would mean that at the current time your pot would erode compared to inflation. In time it should even out but are you happy to see the value of your home be your long-term protection buffer?

Are you protecting your pot to pass some on to your family or are you happy to see it as a sinking fund?

To me - the telling phrases in your post is that you are cautious and it's time for some fun and that your base living expenses seem covered.

Personally I'd treat the fund cautiously but see it as a sinking fund that expires to zero in say 35 years'ish with a slightly lower income needed for perhaps the last 10 years of that time. So perhaps it's spreadsheet time for you?

Good luck.

Caroline_a · 5 June 2011 at 8:09AM

OP I'm not a financial wizard at all, but wanted to say I think you are an inspiration to all of us, particularly those who think that a life of credit is the way forward. Good luck with your savings and investments and I hope you have a wonderful retirement!

SeniorSam · 5 June 2011 at 9:32AM

MR&MRSB
I agree with uk1, a good post looking for answers to a serious matter and one that should not be treated lightly.

I am not able to pass on any financial advice, but one thing I might suggest you consider is that there are lots of Financial Advisers out there, not all of which are INDEPENDENT (IFA). Even amongst them, there are those that, unfortunately, still look at your sort of case as a commission earner. Have meetings with at least 3 qualified advisers that have been with the same firm for many years. Those who move around a lot may not be as steadfast at those 'longer in the tooth'.

Make sure that you do UNDERSTAND everything that is explained to you. If the adviser is good, he will be checking regularly that you have understood and are not just saying that you do, so ask for clarification where required.

BE OVER cautious if anything. When investing part of your capital into equities, you will run the risk that the value can go down as well as up. Look out for all the charges involved. Not just the advisers fee or commission, but the additional charges of the funds you may invest in.

Take your time. It doesn't matter if the funds sit around for a few months whilst you are considering the best move forward, besides which, the investment markets are high .......... will they come down before going up again?

Check on this site (one of the best around) for others in a similar position and get involved by chatting on the site to ask for advice before you make a move.

I hope you eventually do well and find someone to guide you in the years ahead, you deserve it.

Sam

Iancfp · 5 June 2011 at 10:22AM

Ok

As posted above you should take advice on this from someone with advanced independent qualifications who you get on with

Dont put all your eggs in one basket try to cover a number of different asset types

Keep a good amount in cash and low risk NSI (the Index linked is a must)

Bond and equity funds within ISA may be a good option - you need to think about the different risks
Invest outside of cash and your savings will have a potential capital risk but keep it in cash and you have a potential inflation risk and possibly a shortfall in later retirement

good luck

dunstonh · 5 June 2011 at 11:00AM

Advice on an amount of this size should be on fee basis. Its cheaper for you as commission is still paid by you. So, controlling the fee (which should be lower than the commission) is common sense on all but the very smallest transactions.

You have an awful lot to consider as there is no such thing as a no risk option. Everything has risks, even the basic savings account. Many things will require a judgement call. Things that may happen may not and things that were unexpected will happen. You can plan for many of these things and that is where the advice can help but you need to remember that life rarely comes out as planned. So, options need to be flexible and you need to keep things reviewed and be prepared to change and update. What you do now will not be enough to forget about it afterwards. You will need to keep it under review.

uk1 · 5 June 2011 at 11:58AM

My point just to be absolutely clear - is that you should NOT go to any advisor until you are clear on the fundamentals you need to answer for yourself that I suggest.

Otherwise the danger is that in the absence of having thought these things through for yourself and with your better half, you might be swayed by the apparently sensible philosphical approaches proffered, rather than thinking through very slowly HOW you want to approach your investing before hand.

For example - a fundamental questions is "If I managed my fund completely in cash rather than say equities and as a sinking fund - do I have enough with all the other income we have to last us for all of our lives?" If the answer to that is "yes" then you then need ask yourself why on earth are you worrying about the effects of inflation? Why risk everything you currently have and can look forward to - on gaining a little more that you may not need? I have explained that concept to several wealthy friends who really hadn't realised that in fact "they have enough" and they can simply liberate themselves from worrying about inflation by leaving much of their liquid assets in cash. Doing otherwise is basically greed!

This is why I think fundamental soul searching is particularly important for people who are comparitively wealthy - and at the very least migh help you clarify how much risk you need to take.

It may in fact be that you do not need an advisor at all if you choose investments that do not require an advisor and carry no risk to capital.

kidmugsy · 5 June 2011 at 1:18PM

"he pays a small amount of income tax (I am not using all my tax allowance at present)." After you've bought the near-compulsory £15k each of the ns&i Index-Linked Certificates, AND another £15k each held in trust for the other, you could ask yourselves how best to use your tax allowance and both your CGT allowances. For instance, you might like to invest in the 2024 Index-Linked Gilt so that you (you, singular) receive just enough income to use up your Personal Allowance against income tax plus the 10% band for savings income ('11-'12, £2,560).

"We also have a private pension pot of nearly £100K": which of you? If you were to draw a pension now you might wipe out that useful 10% band, whereas if your husband drew pension now, he pays no more than the unavoidable 20% band as long as he keeps his total income below the Age Allowance Trap level of £24k p.a. On the other hand, if he keeps his pension pot intact, it can all come to you tax-free if he dies without having "crystallised" it. One solution would be for your husband to leave his pension pot intact and instead buy a Purchased Life Annuity with part of your capital. (You'd have to consider what sort of annuity, specifically whether there should be a widow's annuity after his death.) These annuities are taxed on very favourable terms ; HMRC treats most of the money you receive as 'return of capital' and so doesn't tax it: only the small part classed as 'income' gets taxed.

The point is that income from the Gilt (taxed at 0% and 10%), plus the incomings from the annuity (taxed favourably), might give you the extra income you want now, while still leaving useful sums available against whatever the future might bring.

I guess that you're both bound to fill S&S ISAs for this tax year. Is there a case for both, or either, of you bunging £2880 p.a. (net) into pensions? I dare say that you could both transfer your cash ISAs into, say, the Birmingham Midshires 5-year 5%p.a. Cash ISA since you will now be awash with instant access cash outside ISAs so that you can afford to tie up the money inside your cash ISAs to get a better interest rate.

You would presumably want the advice of an IFA not only about suggestions such as these, but also about what investments you might make inside S&S ISAs and Pensions, as well as outside them.

MrandMrsB · 5 June 2011 at 3:32PM

Oh this is simply wonderful!!!! Thanks very much to all who have replied so far.

Here are a few notes to clarify our position:

Sorry about being so vague: the pension pot is in hubby's name (I think of it as our pension pot)!! Since all the income, apart from savings income, is in his name, he will pay c£1000 income tax per annum.

Obviously, I intend to spread the risk as much as possible and have even considered other possibilities like buying a classic car! We already have a lot of mediocre paintings (£50 - £2000 each) that we inherited, so feel we have enough works of art. I don't like collecting things and want our home to be clutter-free. Surprisingly our ordinary car that I bought for my husband a couple of years ago has increased in value!! (I told you that everything I touch turns to gold!)

Our IFA, whom we have known for a long time, is the best in our part of the country as far as we are aware. Having said that, he did not mention the NS&I Index-linked Certificates - maybe he assumed we already knew about them, which we did. The problem is that he cannot predict the future! He is not charging us a consultation fee, but will charge 1% commission for looking after the "investment wrapper" for us - and there is a further 0.75% to pay to the company who runs the "wrapper". What we have realised is that we could look after some of this fund ourselves. Rather than worrying about it, I would have fun investing it. It's when I do not have control over money that I worry about it. We do not have our financial advisor's report yet, so it is a little premature to discuss this.

My gut feeling is that we should make no major changes at present until we have a better idea of which way the economy is heading. Obviously I am going to invest in the NS&I certs if I am able to. I have been trying to get hold of NS&I for weeks, but after waiting on the phone for up to an hour, I give up. I think I can pay by card over the phone since we already have accounts with them. What is the quickest way to buy them? That would be very useful to know. I did not know we could buy two NS&I certificates each by putting one into trust, so thanks for that.

As for the point about whether we have enough money or not: that is the question I have been trying to answer. It sounds a lot, but nobody knows what is going to happen to the economy. If inflation continues to rise, our savings could be almost worthless very soon! If for instance we spend the income from the savings, in say 20 years time £300K might be worth very little and produce very little income. At present we need to spend around £3K per year to maintain our home / garden, and another £1-2K for treats and feed ourselves better. So say we need £5K after tax per annum.

Thanks again.

Kohoutek · 5 June 2011 at 3:36PM

MrandMrsB wrote: »

Our IFA, whom we have known for a long time, is the best in our part of the country as far as we are aware. Having said that, he did not mention the NS&I Index-linked Certificates - maybe he assumed we already knew about them, which we did.

IFAs can't make any money out of telling people to invest in NS&I Index-linked Savings Certificates...

No idea what to do with £300K!

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