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  • FIRST POST
    • HappiestByTheSea
    • By HappiestByTheSea 12th Jul 18, 11:54 AM
    • 2Posts
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    HappiestByTheSea
    Retierment income
    • #1
    • 12th Jul 18, 11:54 AM
    Retierment income 12th Jul 18 at 11:54 AM
    Hi All.
    I am retiring next month and will have around 1k/month income from my pension.
    I have downsized my home and have around 200k capital from that and another 40k pension lump sum.
    I would like to supplement the 1k income as much as possible from interest while retaining the majority of the capital.
    I would like around 20-30k to be available at short notice but am happy to tie up the rest of the capital for 1-2 years at a time.

    My current plan is to put 20k in a 2 year cash isa (1.7%) and have 3x 1 year fixed rates (around 2%) with 65k in each, leaving the rest in a 1.3% easy access account.

    Bearing in mind I am fairly risk adverse, does this sound like a good plan ?

    Thanks in advance for any advice.
Page 1
    • OldMusicGuy
    • By OldMusicGuy 12th Jul 18, 12:01 PM
    • 618 Posts
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    OldMusicGuy
    • #2
    • 12th Jul 18, 12:01 PM
    • #2
    • 12th Jul 18, 12:01 PM
    Perfectly reasonable if you do not want to invest. However, I would suggest a bond ladder for the 3 x fixed rates. Do one for 1 year, another for 2 years, a third for 3 years so that you get better rates. Although you may want to hold off a little to see what interest rates do later this year.

    You will get more in the medium/long term (5 years plus) if you go for S&S ISAs or similar however.
    • sjp999
    • By sjp999 12th Jul 18, 12:03 PM
    • 104 Posts
    • 78 Thanks
    sjp999
    • #3
    • 12th Jul 18, 12:03 PM
    • #3
    • 12th Jul 18, 12:03 PM
    If you think you'll have time on your hands you'll do much better with as many High Interest current accounts feeding monthly regular savers as you can get your hands on. That said, once everything is set up it takes little time to maintain. While you'll not get all your available cash into such accounts, what you do will do much better interest-wise than you're getting above.

    See the Top Savings Accounts link at the top of this page to get started.
    • dunstonh
    • By dunstonh 12th Jul 18, 12:45 PM
    • 95,834 Posts
    • 63,545 Thanks
    dunstonh
    • #4
    • 12th Jul 18, 12:45 PM
    • #4
    • 12th Jul 18, 12:45 PM
    Bearing in mind I am fairly risk adverse, does this sound like a good plan ?
    It seems you are quite accepting of risks which could be greater than a sensible investment risk. e.g. inflation risk and shortfall risk.

    You dont say how old you are but if in your early 60s, you could live another 30 years. 100k in will be worth around 60k in 10 years. time. So, ignoring investments to focus only on cash is actaully quite risky. Especially where income is involved.
    I am an Independent Financial Adviser (IFA). Comments are for discussion purposes only. They are not financial advice. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
    • OldMusicGuy
    • By OldMusicGuy 12th Jul 18, 1:34 PM
    • 618 Posts
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    OldMusicGuy
    • #5
    • 12th Jul 18, 1:34 PM
    • #5
    • 12th Jul 18, 1:34 PM
    You dont say how old you are but if in your early 60s, you could live another 30 years. 100k in will be worth around 60k in 10 years. time. So, ignoring investments to focus only on cash is actaully quite risky. Especially where income is involved.
    Originally posted by dunstonh
    You seem to be assuming a pretty high rate of inflation there. You also seem to be ignoring the interest that could be gained on cash. I am getting an average rate of 1.8% right now so assuming that inflation is 3%, that's only a -1.2% nominal decline. As you know, I think it's possible to control personal inflation rates so I have risk free growth of 1.8%.

    OP, don't believe that you have to invest if you are risk averse. You will definitely have the potential to gain more over the medium to long term but there will be more risk.

    Personally, as a very risk averse person, I would split the money. Put some in a bond ladder but also invest some in S&S ISAs, investment trusts or similar. That way you get the best of both worlds. However, you need to have some clear objectives about how you will use the money. If you plan on spending it in the short/medium term your strategy makes sense, if you are going to have some of it for the medium/long term it would make more sense to invest some of it.
    Last edited by OldMusicGuy; 12-07-2018 at 1:36 PM.
    • bowlhead99
    • By bowlhead99 12th Jul 18, 1:36 PM
    • 8,295 Posts
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    bowlhead99
    • #6
    • 12th Jul 18, 1:36 PM
    • #6
    • 12th Jul 18, 1:36 PM
    Hi All.
    I am retiring next month and will have around 1k/month income from my pension.
    I have downsized my home and have around 200k capital from that and another 40k pension lump sum.
    I would like to supplement the 1k income as much as possible from interest while retaining the majority of the capital.
    I would like around 20-30k to be available at short notice but am happy to tie up the rest of the capital for 1-2 years at a time.
    Originally posted by HappiestByTheSea
    So of the 240k you need less than 40k available on short notice (fair enough), but the remaining two hundred thousand pounds can only be tied up for 1-2 years at a time?

    Given you have already downsized and retired, what sort of life event are you envisaging or planning for which will require access to two hundred thousand quid within the next year or two, such that your only options are cash deposits?

    Bearing in mind I am fairly risk adverse, does this sound like a good plan ?
    Are you just going to be renewing those short term cash deposits at a rate worse than inflation (and spending the interest) for the next thirty years?

    If so, then no, it sounds like a poor plan, giving you considerably reduced wealth in the long term compared to investing your money properly rather than saving it in a rolling one-to-two year rainy day fund. Unless you can describe what rainy day will need two hundred grand spent on it next year.

    See an independent financial adviser - it costs money, but it would be money well spent to find out the options for making your money work for you (assuming you don't fully understand investment products).

    Thanks in advance for any advice.
    What options do you have with your pension? Can you forgo the lump sum, or take a smaller one, to get a higher annual amount? Or defer the pension to get a larger one later?

    Given you don't need a 40k lump sum right now, nor 1k a month coming in, because you already have 200k in a bank account that you don't know what to do with it other than putting it in a deposit earning less than inflation. For a risk averse person, the concept of getting higher annual fixed payments for life might be a very attractive option, and effectively getting more investment growth over the coming decades than if you just took the money and stuffed it in your rainy day fund.
    • HappiestByTheSea
    • By HappiestByTheSea 12th Jul 18, 2:58 PM
    • 2 Posts
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    HappiestByTheSea
    • #7
    • 12th Jul 18, 2:58 PM
    • #7
    • 12th Jul 18, 2:58 PM
    Thank you all for taking the time to reply.

    I am already taking the minimum lump sum with the pension, I would take less if I could to increase the
    monthly income. I am 52 btw.

    I guess, now that its put to me, I could tie most of the cash up for a longer period, I had thought however that interest rates are expected to rise fairly soon so I hadn't wanted to be tied into a relatively poor rate for an extended period.

    I do have some plans to purchase a camper and/or a small boat as my new property is right next to a marina so I would need access to at least some of it.

    The pension arrangements are already made so I have little flexibility there.

    My understanding of financial products is indeed probably very basic so I think the IFA option is probably a good one - I just know howvere that if there are risks that capital might be lost I wouldn't sleep well during my retirement !

    Thanks again
    • bostonerimus
    • By bostonerimus 12th Jul 18, 3:11 PM
    • 2,427 Posts
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    bostonerimus
    • #8
    • 12th Jul 18, 3:11 PM
    • #8
    • 12th Jul 18, 3:11 PM
    Thank you all for taking the time to reply.

    I am already taking the minimum lump sum with the pension, I would take less if I could to increase the
    monthly income. I am 52 btw.

    I guess, now that its put to me, I could tie most of the cash up for a longer period, I had thought however that interest rates are expected to rise fairly soon so I hadn't wanted to be tied into a relatively poor rate for an extended period.

    I do have some plans to purchase a camper and/or a small boat as my new property is right next to a marina so I would need access to at least some of it.

    The pension arrangements are already made so I have little flexibility there.

    My understanding of financial products is indeed probably very basic so I think the IFA option is probably a good one - I just know howvere that if there are risks that capital might be lost I wouldn't sleep well during my retirement !

    Thanks again
    Originally posted by HappiestByTheSea
    There's nothing wrong with being conservative and putting your money into safe interest bearing accounts as long as you have dome the maths and you are certain that it will provide you with sufficient retirement income.

    You need to see if 12k/year pension around 2% interest from your 240k and eventually state pension (maybe another 12k or 13k/year by the time you take it) allow you to live as you plan. You can always spend down some of the 240k, but that has to be done carefully. As interest rates go up you''l see higher returns, but your plan is very sensitive to inflation as you are ignoring the potentially greater returns of an equity and bond portfolio.
    Misanthrope in search of similar for mutual loathing
    • OldMusicGuy
    • By OldMusicGuy 12th Jul 18, 3:30 PM
    • 618 Posts
    • 1,301 Thanks
    OldMusicGuy
    • #9
    • 12th Jul 18, 3:30 PM
    • #9
    • 12th Jul 18, 3:30 PM
    My understanding of financial products is indeed probably very basic so I think the IFA option is probably a good one - I just know howvere that if there are risks that capital might be lost I wouldn't sleep well during my retirement !
    Originally posted by HappiestByTheSea
    The most important thing is to define a retirement strategy that lets you sleep at night! However, I suggest you do some reading about investing in things like multi-asset equity/bond funds. You don't have any risk of "losing" capital, unlike some investments. What you risk is the value of your investment falling because the unit price falls in an economic downturn. But the good news is that you still have all those units (as long as you don't chicken out and sell them at a loss), so when the economy recovers and the unit price goes back up (which it inevitably does), you get all your money back and more.

    Talking with a genuinely independent financial advisor may be a good idea.
    • kidmugsy
    • By kidmugsy 12th Jul 18, 3:53 PM
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    kidmugsy
    Capital is meant to bring you feelings of comfort and security. So don't cost yourself sleep.

    However, what if you decided to trickle money into a Stocks and Shares ISA? That would be far less risky than suddenly investing a huge lump sum. If you were to subscribe, say, 500 p.m. for, say, 10 years then you might end up having somewhere about one quarter of your capital in S&S which might be quite enough for a risk-averse person. You could even set yourself a limit of 25% and stop the subscriptions when you've reached it. If you still shiver at the thought of the risk consider using that old-fashioned thing a "With Profits" ISA, where the effort is made to even out the ups and downs of the stock markets. Foresters Friendly Society offer one - there may well be others available.
    https://www.forestersfriendlysociety.co.uk/saving-investing/stocks-shares-nisa/at-a-glance/

    People here will mock the idea - "obsolete", they will shout, "expensive", boo, hiss ... Ignore them: if the charges on a With Profits investment are what must be paid to give you the confidence to slowly move a fraction of your capital into stocks and shares it may well be a cost worth paying.

    As for the 240k, I hope you understand that it would be safest to spread it over a number of institutions that have separate banking licences. Apart from short grace periods involving big lifetime events, your deposits are covered by a guarantee up to only 85k per banking licence. One way round this is to make plenty of use of ns&i (previously known as National Savings and Investments) where they have a much bigger direct guarantee from HM Treasury.

    For example you could put 50k into ns&i's Premium Bonds - the prize fund pays 1.4% p.a. of which around 1.25% p.a. would reach you as a roughly even flow of small monthly prizes and the other 0.15% goes on the bigger prizes which you might win (but very likely won't). All the prizes are tax-free.

    You could open a 123 current account at Santander, put in 20k, and transfer the Direct Debits for your bills to that account. You'll get 1.5% p.a. and a cash back on the bills. For this they will charge you 5 (or thereabouts) per month. You'll be handsomely in pocket. You could also open their monthly saver that pays 5% AER interest. These interest payments are taxable but in your position of having a modest annual income there will be no tax to pay.

    Then you'd open savings accounts elsewhere, some instant access, some notice accounts perhaps, some fixed term. Just make sure that you don't have more than 85k with any one bank (or building society), or any one group of banks that share one banking licence.

    The idea of a "ladder" of fixed term accounts advanced above might suit you well. For example, after your PBs and Santander account are set up you'll have about 170k to spread about at less than 85k per institution. Quite easily done.
    Last edited by kidmugsy; 12-07-2018 at 3:55 PM.
    Free the dunston one next time too.
    • LobsterMemory
    • By LobsterMemory 12th Jul 18, 9:23 PM
    • 80 Posts
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    LobsterMemory
    First of all, each to their own and I have no idea on OP's circumstances or what it's like to live outside of London but isn't 52 a bit young to be setting off living on 16k a year (some of which will surely be taxable) for the next 13 years before the state pension ups it a bit?

    And if going for a camper or boat, aren't there going to be mooring fees & running costs eating quite heavily into that?

    It sounds idyllic but seems to me to need a bit more cash than what's being suggested. If I'm wrong, let me know and I might do the same in a few years!
    • Dazed and confused
    • By Dazed and confused 12th Jul 18, 9:41 PM
    • 3,216 Posts
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    Dazed and confused
    LobsterMemory

    One advantage of the op's plans is they will have only a tiny amount of income with actual tax exposure.

    The 1k/month pension will have tax liability of just 30 per year (slightly less if op is Scottish resident for tax purposes) but that will mean they can have 5,850 of taxable interest which would be taxed at one of the 0% rates.

    Their is still the inflation risk others have mentioned but tax will be a minor proportion of the op's overall income. This will totally change once they start to receive the new State Pension but that is some years off for the op
    • LobsterMemory
    • By LobsterMemory 12th Jul 18, 9:56 PM
    • 80 Posts
    • 46 Thanks
    LobsterMemory
    Hmm, just looked up how you can claim your pension lump sum before you're 55 so perhaps long term stocks and share schemes may not be the way to go
    • MallyGirl
    • By MallyGirl 13th Jul 18, 10:47 AM
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    MallyGirl
    generally you can't claim any of your pension before 55 - not without a big tax bill.
    • Audaxer
    • By Audaxer 13th Jul 18, 2:44 PM
    • 1,435 Posts
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    Audaxer
    However, I suggest you do some reading about investing in things like multi-asset equity/bond funds. You don't have any risk of "losing" capital, unlike some investments.
    Originally posted by OldMusicGuy
    I know what you mean, but I'm surprised that you say that there is no risk of losing capital, as there could be a risk with even multi asset funds (which I do like) if there is an equity and bond crash at the same time. Recovery time could be a lot longer than on previous occasions in history.
    • OldMusicGuy
    • By OldMusicGuy 13th Jul 18, 2:56 PM
    • 618 Posts
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    OldMusicGuy
    I know what you mean, but I'm surprised that you say that there is no risk of losing capital, as there could be a risk with even multi asset funds (which I do like) if there is an equity and bond crash at the same time. Recovery time could be a lot longer than on previous occasions in history.
    Originally posted by Audaxer
    Unless you sell your units, you don't lose anything, unlike investments in things like corporate bonds or unregulated bonds, where you could literally lose everything. As long as you hold your nerve, the value of your investments will recover. That was the point I was trying to make for the OP, who is nervous of investing.

    Your point is a different one, which is about timing the market. That's why I would not recommend the OP putting all their money into investments because they seem to want access to some of it in the short/medium term.
    • kidmugsy
    • By kidmugsy 13th Jul 18, 4:32 PM
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    kidmugsy
    the value of your investments will recover.
    Originally posted by OldMusicGuy
    If he were living off the dividends it might take a long time for his capital to recover though. Cheerful talk in this forum about recovering in just a few years ignores history.

    The UK and US have atypically satisfactory stock market histories and so tend to be the only ones equity boosters mention. And even then recovery can be slow.

    For example, consider the S&P 500, and consider total return - i.e. an investor who is not drawing the dividends but accumulating them. How long does he take to recover from a market fall, allowing for inflation? Two years? Three? Since the Second World War the two worst cases have been one period requiring 13 years and another requiring 17 years. And that's for the favourable case of the US. What about Japan? What about the fact that we are in the aftermath of a financial experiment that is unprecedented in history? And what about someone who is spending the dividends rather than accumulating them?

    To hold no equities is probably pretty risky. To believe that history proves that the market is bound to snap back in two or three years is deluded.
    Free the dunston one next time too.
    • Audaxer
    • By Audaxer 13th Jul 18, 8:35 PM
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    Audaxer
    Unless you sell your units, you don't lose anything, unlike investments in things like corporate bonds or unregulated bonds, where you could literally lose everything. As long as you hold your nerve, the value of your investments will recover. That was the point I was trying to make for the OP, who is nervous of investing.

    Your point is a different one, which is about timing the market. That's why I would not recommend the OP putting all their money into investments because they seem to want access to some of it in the short/medium term.
    Originally posted by OldMusicGuy
    I wasn't talking about timing the market. I agree that investments should recover in time, but if the OP is nervous about investing, he should be aware that capital is not guaranteed. We have had a long bull market, so if there is an equity crash now and again within the next 10 years, there is a possibility that the value of an investment could be lower in 10 years time - hopefully not, but it could be.

    As he is looking for retirement income, it is certainly okay for him to withdraw income from his investment, provided he is willing to take out no more than a safe withdrawal rate (estimated to be 4% per annum maximum) provided he has a cash buffer to cover bad years.
    • bostonerimus
    • By bostonerimus 13th Jul 18, 9:27 PM
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    bostonerimus
    When you're taking retirement income you might not have the luxury of waiting for your investments to recover from a downturn before you have to sell some for income. This is where having a sufficient cash/short term bond allocation is useful so you can avoid selling other things at a loss......or you might partially annuitize to provide a stable income foundation or an equity and bond portfolio with a 4% withdrawal rate and a strong stomach.
    Last edited by bostonerimus; 13-07-2018 at 9:47 PM.
    Misanthrope in search of similar for mutual loathing
    • Thrugelmir
    • By Thrugelmir 13th Jul 18, 11:41 PM
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    Thrugelmir
    Unless you sell your units, you don't lose anything, unlike investments in things like corporate bonds or unregulated bonds, where you could literally lose everything. As long as you hold your nerve, the value of your investments will recover.
    Originally posted by OldMusicGuy
    Companies are living breathing entities not numbers that simply move up and down. Northern Rock shareholders, as an example, lost everything. That capital cannot ever be replaced.
    Financial disasters happen when the last person who can remember what went wrong last time has left the building.
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