How can my £100k pay me £10k a year?

choille wrote: »

Could you buy a letting property?

This is a possibility. Using RightMove it would be possible to judge the potential yield of a property bought for circa £95K. BTL properties incur a 3% stamp duty tax and other buying costs such as surveys, legal fees and searches mean that with £100K you can only buy a property that costs £95K.

You will also need to buget for agent fees, property maintenance (including any repairs necessary before the property can be rented), council tax and utility charges during void periods, insurance and tax. I receive about 65% of gross rent after expenses and tax from my rental properties. I reckon my net yield from my residential properties is about 4.4% pa.

It can also be stressful being a landlord, especially when the tenant is not paying their rent as you don't know how long this situation will go on for.

I'm curious about whether you are renting or own your own home outright, or are buying with a mortgage. This might have a bearing on the best way to invest your windfall.

Your age and state pension entitlement are important elements to advising you.

Do you know how much you need by way of income per annum to live (assuming that you retain your entitlement to PIP)?

Masonic is thinking along similar lines.

BobQ wrote: »

masonic wrote: »

If you are able to put it in a pension with tax relief (relying on carry forward of previous years pensions allowance), and you are 55 or older to be able to enter drawdown, then at a push it could last that long. But you'd need to invest in low-medium risk funds and there would be a risk of not meeting that objective. But, this would change your eligibility for benefits, which could make all the difference.

How can he do this without an income. Contributions are capped at annual earnings I recall.

I think masonic has get mixed up with the concepts of annual allowance and tax relief.

From https://www.gov.uk/tax-on-your-private-pension/pension-tax-relief :

If you do not pay Income Tax

You still automatically get tax relief at 20% on the first £2,880 you pay into a pension each tax year (6 April to 5 April) if both of the following apply to you:

• you do not pay Income Tax, for example because you’re on a low income
• your pension provider claims tax relief for you at a rate of 20% (relief at source)

And from https://www.gov.uk/tax-on-your-private-pension/annual-allowance :

Annual allowance

You usually pay tax if savings in your pension pots go above the annual allowance. This is currently £40,000 a year.

Carrying over unused allowance from previous years

If you use all of your annual allowance for the current tax year (6 April to 5 April) you can carry over any allowance you did not use from the previous 3 tax years. Carry over unused allowance from the earliest tax year first.

The first one is very simple, you can get 20% tax relief on £2,880 if you don't pay income tax.

The second one is saying that regardless of your income tax, if you pay more than £40,000 a year (the annual allowance) and don't have allowances left over from previous years, then you will have to pay tax on it. This has nothing to do with the above mentioned tax relief.

To answer OP's question, assume that he/she will have the £212 per month (£2,544 per year) income from benefit (PIP) for the next 15 years, then he will only need additionally £7,456 per year from his £100k savings to fulfil the £10k per year income target.

A simple math indicates that the money will last 100000 / 7456 = 13.4 years if no interest is paid and and not inflations involved. This is very close to the 15 years goal, only 1.6 years short.

Therefore, the 15 years isn't impossible considering that he/she could invest a very large proportion of the money into bond markets (assuming 2% above inflation returns) and keep a small cash reserve for withdrawing money in the market downturns. As long as the market isn't extremely bad, the money should have no trouble to provide income for 15 years. In fact, the money may last a few years longer than that in average cases.

Mr.Saver wrote: »

Therefore, the 15 years isn't impossible considering that he/she could invest a very large proportion of the money into bond markets (assuming 2% above inflation returns) and keep a small cash reserve for withdrawing money in the market downturns. As long as the market isn't extremely bad, the money should have no trouble to provide income for 15 years. In fact, the money may last a few years longer than that in average cases.

Bonds are very unlikely to deliver inflation+2%. Long dated Gilts are trading at 30-70% premiums and therefore have yields to maturity of less than 2%. Index linked Gilts are trading at much higher premiums and have negative yields to maturity meaning they will deliver RPI minus 1.5%. One could consider international bonds, but the key risk there would be of the pound strengthening from it's historic low.

Corporate bonds of course have a wide range of yields, but also vary widely in risk. It is unlikely a portfolio of corporate bonds could be constructed that could be assured to last at least 15 years, though I agree one could be constructed with >50% chance of lasting 15 years. But a mixture of equities and cash could do likewise, or indeed 100% equities.

A 50% chance is a pretty low bar. I suspect the OP would want something more like 80-90% confidence of the money lasting, which would be feasible under normal market conditions, but not so much post-global financial crisis / QE.