Question
I have retired early do to ill health (55) and my husband has also taken early retirement he will finish work in june and has opted to take the cash lump sum (57).
We are now looking at the best way to generate income from funds around £150,000 we also hold ISA's valued at around £40,000.
Because of my health I am a little put off by to long a time of tying up money hence we don't want to put it into an annuity.
Investing the money sounds a little scary but we do need to have an income and also look to keep the capital value there. Another thing that puts us off is the fees and commission IFA charge we don't want to be paying all the interest and income out and ending up with less than I could get in a long term fixed account.
We really need some good sound advise.Answer
Firstly, apologies for not replying sooner, I’ve been busy with other stuff lately giving me less time than I’d like to spend on this website.
The safest option is to keep the money in high interest savings accounts, including cash ISAs. Assuming your existing ISAs are cash ISAs then the best variable rates you can currently get are around 3% and the same too for conventional savings accounts, although beware that the top rates generally include temporary bonuses.
This means an annual income of around £5,700 from your £190,000. The non-ISA income will be taxable, so if one of you is in a lower tax band than the other it would make sense to hold most, if not all of the money in that person’s name. Also don’t forget that only the first £50,000 per person per institution is covered by the Financial Services Compensation Scheme (FSCS).
Opting for fixed rates of up to five years could increase interest to 4% or more, providing an annual income of £7,500 to £8,500 before tax.
Although safe, the downside of cash, especially if you withdraw interest, is that your pot of money will buy less and less in future if prices rise, i.e. you’ll lose out to inflation. Interest rates can also fluctuate, although they can't really get much worse than current levels.
Investing in assets such as corporate bonds, stockmarkets and property can overcome this problem, because as well as producing income the underlying value (e.g. share or property price) might also increase. However, you also risk losing money, in which case inflation would be the least of your worries.
Such investments could currently produce an income of around 4 to 6% before tax (after basic rate tax for share dividends), i.e. £7,600 to £11,400 a year from your £190,000. However, you should be prepared to remain invested for 5-10 years to reduce the risk of losing money.
In practice a combination of cash and investments is likely to be a sensible compromise. The exact mix will depend very much on how cautious you want to be and how much income you require.
Although it sounds like you’d probably benefit from good independent financial advice, I share your concerns over the difficulty of finding a good, honest and cost effective financial adviser.
You could try using www.unbiased.co.uk/ to find fee-based independent financial advisers in your area then speak to a few to see whether you can find one you’d be happy using. You could also try speaking to Bestinvest, which is currently the only discount broker I know of which also gives advice (paid for by trail commission).
You might also find our financial advice page helpful, as it includes tips of what to look out for when choosing an adviser.
If you do decide to invest I wouldn’t rush. Markets are pretty volatile at the moment and I expect there’ll be more bad news before things improve. Bearing this in mind cash doesn’t look unattractive despite the low rates on offer.
I have retired early do to ill health (55) and my husband has also taken early retirement he will finish work in june and has opted to take the cash lump sum (57).
We are now looking at the best way to generate income from funds around £150,000 we also hold ISA's valued at around £40,000.
Because of my health I am a little put off by to long a time of tying up money hence we don't want to put it into an annuity.
Investing the money sounds a little scary but we do need to have an income and also look to keep the capital value there. Another thing that puts us off is the fees and commission IFA charge we don't want to be paying all the interest and income out and ending up with less than I could get in a long term fixed account.
We really need some good sound advise.Answer
Firstly, apologies for not replying sooner, I’ve been busy with other stuff lately giving me less time than I’d like to spend on this website.
The safest option is to keep the money in high interest savings accounts, including cash ISAs. Assuming your existing ISAs are cash ISAs then the best variable rates you can currently get are around 3% and the same too for conventional savings accounts, although beware that the top rates generally include temporary bonuses.
This means an annual income of around £5,700 from your £190,000. The non-ISA income will be taxable, so if one of you is in a lower tax band than the other it would make sense to hold most, if not all of the money in that person’s name. Also don’t forget that only the first £50,000 per person per institution is covered by the Financial Services Compensation Scheme (FSCS).
Opting for fixed rates of up to five years could increase interest to 4% or more, providing an annual income of £7,500 to £8,500 before tax.
Although safe, the downside of cash, especially if you withdraw interest, is that your pot of money will buy less and less in future if prices rise, i.e. you’ll lose out to inflation. Interest rates can also fluctuate, although they can't really get much worse than current levels.
Investing in assets such as corporate bonds, stockmarkets and property can overcome this problem, because as well as producing income the underlying value (e.g. share or property price) might also increase. However, you also risk losing money, in which case inflation would be the least of your worries.
Such investments could currently produce an income of around 4 to 6% before tax (after basic rate tax for share dividends), i.e. £7,600 to £11,400 a year from your £190,000. However, you should be prepared to remain invested for 5-10 years to reduce the risk of losing money.
In practice a combination of cash and investments is likely to be a sensible compromise. The exact mix will depend very much on how cautious you want to be and how much income you require.
Although it sounds like you’d probably benefit from good independent financial advice, I share your concerns over the difficulty of finding a good, honest and cost effective financial adviser.
You could try using www.unbiased.co.uk/ to find fee-based independent financial advisers in your area then speak to a few to see whether you can find one you’d be happy using. You could also try speaking to Bestinvest, which is currently the only discount broker I know of which also gives advice (paid for by trail commission).
You might also find our financial advice page helpful, as it includes tips of what to look out for when choosing an adviser.
If you do decide to invest I wouldn’t rush. Markets are pretty volatile at the moment and I expect there’ll be more bad news before things improve. Bearing this in mind cash doesn’t look unattractive despite the low rates on offer.
Read this Q and A at http://www.candidmoney.com/questions/question199.aspx
No comments:
Post a Comment