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Retirement income investing advice for 64yo

Including Financial Independence and Retiring Early (FIRE)
iambic
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Retirement income investing advice for 64yo

#203894

Postby iambic » February 26th, 2019, 10:16 am

As per a previous post, I'm helping a relative do some planning for her retirement (thanks to those who commented on my post about the £10k sum in her SIPP - I've had a look & it looks like a sensible fund (it's returned 5.6% over the last 5 years) & fees are low (0.2%), so she's decided to leave it where it is for now).

Speaking to her last night, she said she has £60k sitting in an easy-access savings account. Previously she has has bought fixed-term bonds with it to earn some interest on the money, but is reluctant to lock the cash away now as she's not sure when she might need access to it.

She is keen to make the money work for her, but of course capital preservation is important as she is 64 & will hopefully be retiring (she's self-employed) in the next few years.

I'm concerned that she won't have enough in savings/pensions to cover her spending when she gives up work (I'm not sure exactly how much she has in addition to the £60k), so ideally I'd like to find a way to generate an income (even a small one) from her savings to help top up the full state pension she'll start receiving at 67, while preserving the bulk of her capital in case of any big expenses (car, moving home etc.).

My first recommendation was to open an ISA quickly to get £20k paid in before end of March, then repeat the process in April, to tax shelter it.

As this isn't my own money & my relative will be relying on it for her retirement, I'm torn between advising her based on what I think I would do (i.e. put it into a selection of IT's & take the dividends as income) & not wanting to expose her to too much risk, given the shorter timescales she is looking at before potentially needing to use the capital to fund her retirement.

The "basket" of IT's I was thinking might be suitable are:

TR Property REIT - (Global Property)
City of London CTY - (UK Equity Income)
BMO Global Smaller Companies - (Global Small Cap)
Scottish Mortgage - (Global Growth)

Rather than putting the whole £60k into this, I was thinking of suggesting putting the first £20k into IT's, then potentially putting the rest into a mixed equities/bonds fund to reduce volatility but hopefully still provide better returns than she's currently getting.

As a side note, my relative has always had an IFA providing her with advice & I did suggest she might like to talk to someone professional, but she's feeling pretty overwhelmed by the prospect of having yet more options flung at her, so the simpler the solution & the less "management" required, the better. She trusts my advice so I'm probably overthinking it massively - I know there's no "perfect" solution but want to give her the best advice I can.

I'd be grateful for your thoughts & for any suggestions of suitable platforms to host a "buy and hold" S&S ISA. iWeb has come up initially as the cheapest option to hold the IT's above plus a fund.

If you've read this far then thank you very much! I look forward to hearing your thoughts,
iambic

Alaric
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Re: Retirement income investing advice for 64yo

#203908

Postby Alaric » February 26th, 2019, 10:48 am

iambic wrote:I'd be grateful for your thoughts & for any suggestions of suitable platforms to host a "buy and hold" S&S ISA. iWeb has come up initially as the cheapest option to hold the IT's above plus a fund.


All platforms are probably suitable. You might want to tilt slightly in the direction of those that charge for dealing in OEICs, but don't levy a fee as % of value.

As things stand at present, you get little more than 1% on your savings unless you are prepared to put capital at risk. With platforms, it's easy enough to get money out if needed in a hurry. The risk with ITs is that a stock market downturn had taken place in the meantime. For less capital risk than shares but higher return than cash, corporate bond funds or ETFs could be considered.

Hariseldon58
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Re: Retirement income investing advice for 64yo

#203919

Postby Hariseldon58 » February 26th, 2019, 11:23 am

There is no easy solution for someone else.

In fact you are potentially on a hiding to nothing, you do as you suggest, long term it’s highly likely to work out fine , you’ll get little credit from your relative, BUT there will be a period of extreme volatility when the capital could decline markedly, even if your relative has the nerve to sit it out and sees a 40% fall , you will be in deep doodah !

I have seen this first hand, suggested portfolio ( even mix of equities and bonds) has risen from £30k to £150k over 20 years or so, (paying out some of the income) even a small drop in the portfolio value triggers a comment !

I remind the relative that the £30k he has invested was still about £30k... The whole exercise was pointless in that the only persons to benefit from the Investment return will be the beneficiaries.... not me I hasten to add.

iambic
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Re: Retirement income investing advice for 64yo

#204251

Postby iambic » February 27th, 2019, 12:25 pm

Alaric wrote:
All platforms are probably suitable. You might want to tilt slightly in the direction of those that charge for dealing in OEICs, but don't levy a fee as % of value.

As things stand at present, you get little more than 1% on your savings unless you are prepared to put capital at risk. With platforms, it's easy enough to get money out if needed in a hurry. The risk with ITs is that a stock market downturn had taken place in the meantime. For less capital risk than shares but higher return than cash, corporate bond funds or ETFs could be considered.


Thanks Alaric, I've reached the same conclusion about a platform that doesn't charge a % of value. I'll have a look for some options - at least that narrows it down a bit. That's a good shout about ETF's & bond funds. I think we're (well my relative, with my help is) going to put an initial 20k into IT's, then I'll spend a bit of time looking at some potential options for funds that can be held within the same S&S ISA come the new tax year.

Hariseldon58 wrote:I have seen this first hand, suggested portfolio ( even mix of equities and bonds) has risen from £30k to £150k over 20 years or so, (paying out some of the income) even a small drop in the portfolio value triggers a comment !


I can see how this could happen & if it was anyone else, I would be thinking twice! I am very close to the relative I'm talking about though & know she's grateful for the help, but also savvy enough to know the risks & is going into it with eyes open. A friend of hers recently put her entire life savings into an annuity & is now a bit worried about the fact she doesn't have access to her money, so my relative is keen to do something else with hers.

That said, I think I'm going to be the one panicking as soon as there's any kind of downturn as it feels a lot scarier suggesting ideas for other people's money than it does deciding what to do with my own... :?

monabri
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Re: Retirement income investing advice for 64yo

#204339

Postby monabri » February 27th, 2019, 4:05 pm

Scottish Mortgage & BMO Global SC for income.? .both yield less than 1%...I would suggest they are not suitable for the needs described.

You could explore " Luni's Baskets" ( use the search tools) for a range of ITs.

CTY seems a reasonable choice. ( and a Luni choice).

My Income ITs are Merchants (MRCH) Henderson Far East ( HFEL) and European Assets (EAT).

Vanguard VHYL might be a compromise ( low charges, 3.5% yield, spread over 1400 companies..link provides more info).

https://www.hl.co.uk/shares/shares-sear ... gh-div-yld


I would definitely not suggest investing in single company shares with someone else's money...

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Re: Retirement income investing advice for 64yo

#204356

Postby SalvorHardin » February 27th, 2019, 4:40 pm

iambic wrote:That said, I think I'm going to be the one panicking as soon as there's any kind of downturn as it feels a lot scarier suggesting ideas for other people's money than it does deciding what to do with my own... :?

I had something similar a few years ago. A friend was retiring, had a tax-free pension lump sum to invest and wanted a higher income than they could get on deposit. They asked me for some ideas.

I knew that they could afford to take on a decent amount of capital risk, even though it would take some time for them to adjust to share price volatility. So I explained to them the reasoning behind why I held some of my shareholdings (what I considered to be the lower risk ones), what dividends they paid and left them to think about it.

Most, but not all, yielded between 1% and 4%, and I included operating companies (British and foreign) as well as investment trusts. All of these holdings were ones that I would have no problem holding for a decade or more (some, notably Unilever, have been held for much longer). So if they lose money, I lose money. It is a clear case of what Nassim Taleb calls "skin in the game" (see link at the end of this post).

I know some of the holdings that they purchased (mostly investment trusts), but not all, and I never asked about the amounts that they invested. One of their holdings is a foreign company whose products they regularly use and they really like owning a piece of the action!

https://www.theguardian.com/books/2018/ ... leb-review

iambic
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Re: Retirement income investing advice for 64yo

#204817

Postby iambic » March 1st, 2019, 1:44 pm

monabri wrote:Scottish Mortgage & BMO Global SC for income.? .both yield less than 1%...I would suggest they are not suitable for the needs described.

You could explore " Luni's Baskets" ( use the search tools) for a range of ITs.

CTY seems a reasonable choice. ( and a Luni choice).

My Income ITs are Merchants (MRCH) Henderson Far East ( HFEL) and European Assets (EAT).

Vanguard VHYL might be a compromise ( low charges, 3.5% yield, spread over 1400 companies..link provides more info).

https://www.hl.co.uk/shares/shares-sear ... gh-div-yld


I would definitely not suggest investing in single company shares with someone else's money...

Thanks monabri, that's really useful. You're quite right about the yield, I should definitely have taken that into account as this money will be invested primarily for income. There's no danger of buying individual company shares, I'm keen to spread the risk & diversify as much as I can.

I've had a rethink & have come up with the below portfolio - if you get a sec to have a look I'd be grateful. I used Luni's basket of 7 as a reference but was nervous of putting too much into the UK, so have tried to include some Global IT's as well. I'm not sure whether to just split the initial 20k evenly between them all, or whether to divide it up in the ratios below. For simplicity's sake I'm leaning towards an even distribution.

One question - can you buy "part" of a share in an IT like you can in a fund? I've been assuming that you can't & that, like ETF's, you have to buy entire shares - but I haven't been able to find a definitive answer yet.

Thanks for the fund recommendation as well - I think the next lump sum of 20k that goes into the ISA will be invested in a fund & I like Vanguard for their low fees, so will investigate VHYL.


Alaric
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Re: Retirement income investing advice for 64yo

#204843

Postby Alaric » March 1st, 2019, 3:13 pm

iambic wrote:One question - can you buy "part" of a share in an IT like you can in a fund? I've been assuming that you can't & that, like ETF's, you have to buy entire shares - but I haven't been able to find a definitive answer yet.


Their legal form is of whole shares. Prices are usually in a range that for a £ 5000 purchase you only overshoot or undershoot by a pound or two.

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Re: Retirement income investing advice for 64yo

#204898

Postby Backache » March 1st, 2019, 6:55 pm

I know it doesn't provide masses of income but Vanguards life strategy funds maybe 40% are surely designed around this kind of need?

monabri
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Re: Retirement income investing advice for 64yo

#205072

Postby monabri » March 2nd, 2019, 4:15 pm

WTAN & FCIT are good selections for buy and forget but the yields are a bit low if you are after income " now . You might buy them with a view to holding for many years, hoping for growth.

I would suggest having a look at HFEL (Henderson Far East) as an income candidate and possibly European Assets Management (EAT) . Note, currently EAT is soon to migrate to the UK (18th March).


As always, DYOR.

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Re: Retirement income investing advice for 64yo

#210394

Postby richfool » March 26th, 2019, 1:40 pm

I am in the situation where I am in receipt of a final salary pension and a state pension, which provide sufficient income for my day to day living expenses. I then have a portfolio of IT's, with the objective of producing income with some growth.

With the prospect of a bear market not too far away and preferring to see dividends rather than solely targeting capital growth, I have recently reduced my holdings of Global Growth (Equity) IT's, including Witan and instead directed the proceeds into "Flexible" sector, Multi-Asset class IT's. Thus I added JP Morgan Multi-Asset trust (MATE) and a smaller position in Seneca Global Income & Growth Trust (SIGT). These trusts hold positions in other assets classes including: bonds, infrastructure and property REITS. I also hold MYI and JPGI in the Global G&I sector..

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Re: Retirement income investing advice for 64yo

#210562

Postby OhNoNotimAgain » March 27th, 2019, 8:18 am

I am always surprised about the obsession with fund fees yet everyone accepts the need for a platform that might charge 0.5%.

You don't need a platform to invest directly in some OEICs.

tjh290633
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Re: Retirement income investing advice for 64yo

#210571

Postby tjh290633 » March 27th, 2019, 9:03 am

OhNoNotimAgain wrote:I am always surprised about the obsession with fund fees yet everyone accepts the need for a platform that might charge 0.5%.

You don't need a platform to invest directly in some OEICs.

Neither do you need to use a platform that makes a percentage charge. If the charge is capped at a low figure, that is different. If you are investing in a tax shelter, then you have no option but to use a platform in some form, even if it that is provided by the fund managers.

TJH


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