Retirement strategy in current conditions ?

[ursaminortaur]

I am a bit woolly on the details because my position is different but can't you backdate 3 years worth of pension contributions up to a max of 40 grand a year.
Perhaps you have already done this and we are in the realms of SUBSTANTIAL amounts of cash and little jobs like this are a given and you have got all the 40% tax back that you can.
Just my first thought.

W.

The amount that you can contribute each year and get tax relief is limited to your gross relevant earnings each year. You can carry-forward the previous three years unused annual allowance* ( which could be up to 3 * £40,000 though if you are a really high earner then your annual allowance could be reduced by what's known as the taper). You would still need to have earnings in the current year which covered that contribution the carry-forward just allows those earning more than £40,000 to exceed the annual allowance limit by carrying forward the unused allowance from previous years. If you have earnings less than £40,000 then you cannot make use of carry-forward at all since you need to use up this year's annual allowance before using carry-forward ( you also lose the right to use carry-forward when making contributions if you have started taking a DC pension and taken out more than just the tax free lump sum).


* You will need to have been a member of a pension scheme during those years even if you hadn't contributed anything.

[tjh290633]

What is your objective? Is it to get income? Is it to preserve capital value? Is it to get an income flow that increases at least as much as inflation?

An index-linked annuity will do it up to a point, as most will have a 5% limit (mine does) but you have given up your capital.

No fixed interest security will protect you against inflation, either in terms of capital value or of income.

Index-linked gilts do not give much income, but will give some protection against inflation of the capital.

A good selection of equities will provide an increasing flow of dividend income most of the time, but the capital value will rise and fall with the market. This is the approach that I have used, with results that meet my objective.

TJH

[Howard]

A very senior actuary once said to me "The risk of not taking a risk is sometimes greater than the risk of taking a risk". I think I understood what he meant . We took a business risk and it came off.

Maybe it's worth taking the very small risk of putting 20k of a large cash pile into an investment ISA with a big stockbroker, like Hargreaves Lansdown, iWeb or Barclays Stockbrokers? And invest it in four investment trusts with a spread of international investments. Then watch it for a year and decide whether to invest another 20k next year. And possibly more in a SIPP? The risk of losing a few thousand if it does badly is small and, who knows, it might be fun and educational. And lead to the confidence to invest more.

I admit to bias, as many years ago I took the risk of investing in a SIPP and ISAs rather than buying an annuity (or keeping a cash pile). It turned out to be a good decision for an amateur investor. Like many others here I take an interest in business and financial matters and, while Mrs H does the crossword, I find that keeping up with market information keeps my brain active.

regards

Howard

[Shelford]

some very good advice here.

Sitting on a pile of cash also has its risks, as other posters have commented.

You haven't answered the question about other dependents/spouse. whether you wish to leave something on, or give to charity, is an important factor.

4 thoughts:

-you state you are risk averse and also have been stung by poor advice (me too...) In which case you might consider Vanguard lifestyle funds and/or a Vanguard pension. They'll do a risk profile on you, then recommend a fund for you. You then do nothing except receive the income.
-you might consider a hybrid approach. take an annuity (which at your age is better than it was 5 years ago, and is enjoying better rates courtesy of Truss inter al) to cover say essential costs (viz energy, council bills, subsistence), and put the rest into a Vanguard fund for discretionary income
-if you are still working, you might consider paying into a Vanguard pension using the funds mentioned above. You can carry forward payments from previous years. It would be highly tax efficient to do so on the basis of the info you have provided.
-if you are constitutionally wedded to cash, other posters have suggested places to put the money. If you are concerned about running out, a safety buffer of 2 years cash is not uncommon in different accounts (I have three...) which will enable you to sleep at night.

[Inv101]

To answer some of the qs and add some perspective, although it will probably sound crazy that I don't have professional advice given the numbers ....

I have aprrox £10m in cash + £1.25m in SIPP + Isas and a substantial mortgage free home. I have already made provision for my offspring, so am not too worried about them.

This is all on the back of having had, to all intents and purposes, minimal investment income and no capital gains (apart from the house) and trusting nobody's advice, but being able to sleep at night and get on with the day job, because I am not worrying about gyrating markets or fund managers ripping me off.

I am very reluctant - even now and even with those numbers - to spend any capital, so was thinking to invest (say) £6m in 10 yr corp bonds to give me a guaranteed income of approx £350k until my late 70's and a more variable income from the £4m that I would probably keep on deposit.

This probably sounds bonkers, but ....

[BullDog]

Given the numbers, in your shoes, I would just live off the money and stop worrying about it. Good luck for the future.

[Boots]

A very senior actuary once said to me "The risk of not taking a risk is sometimes greater than the risk of taking a risk".

I think this lesson is important, but often very difficult to learn.

To return to the OP, I too was burned by the Zeros debacle many years ago. That really smarted at the time. I was quite young and a novice investor. In my case I learned three lessons:
i) Much "professional" advice was a crock of sh!t peddled by snake oil salesmen after commission.
ii) If I was going to lose money with professional advice, I may as well lose money (or hopefully not) on my own and save the fees.
iii) Diversification was the key.

I repaired the damage and things have gone quite well from then, even allowing for the "current conditions".

I found Tim Hale's Smarter Investing a very helpful book and quite often return to it for a re-read.

Your latest post adding perspective is interesting, but actually I don't think it really changes anything. Once you get beyond food, paying the mortgage, safety net, etc, etc, it doesn't really change things if we are discussing five figures, six figures or more.

Good luck with your decisions.

[Dod101]

To answer some of the qs and add some perspective, although it will probably sound crazy that I don't have professional advice given the numbers ....

I have aprrox £10m in cash + £1.25m in SIPP + Isas and a substantial mortgage free home. I have already made provision for my offspring, so am not too worried about them.

This is all on the back of having had, to all intents and purposes, minimal investment income and no capital gains (apart from the house) and trusting nobody's advice, but being able to sleep at night and get on with the day job, because I am not worrying about gyrating markets or fund managers ripping me off.

I am very reluctant - even now and even with those numbers - to spend any capital, so was thinking to invest (say) £6m in 10 yr corp bonds to give me a guaranteed income of approx £350k until my late 70's and a more variable income from the £4m that I would probably keep on deposit.

This probably sounds bonkers, but ....

Your biggest worry is clearly the security of wherever you have the cash parked. In your shoes, I would be setting up a charitable trust to get some assets out of my estate to save on IHT and do some good for others. That is though just me and I am not telling or even advising you what to do, except stop worrying about it.

Dod

[scrumpyjack]

To answer some of the qs and add some perspective, although it will probably sound crazy that I don't have professional advice given the numbers ....

I have aprrox £10m in cash + £1.25m in SIPP + Isas and a substantial mortgage free home. I have already made provision for my offspring, so am not too worried about them.

This is all on the back of having had, to all intents and purposes, minimal investment income and no capital gains (apart from the house) and trusting nobody's advice, but being able to sleep at night and get on with the day job, because I am not worrying about gyrating markets or fund managers ripping me off.

I am very reluctant - even now and even with those numbers - to spend any capital, so was thinking to invest (say) £6m in 10 yr corp bonds to give me a guaranteed income of approx £350k until my late 70's and a more variable income from the £4m that I would probably keep on deposit.

This probably sounds bonkers, but ....

I prefer to think in real terms, if that is possible. So, in your position, I would view having £6m in corporate bonds as losing £300k a year of capital to inflation (assuming 5% inflation) and then paying a lot of income tax on the £350k of interest (and the income tax on that is going to rise!). I suppose my attitude is coloured by having lived through the very high inflation on the '70s, so I regard it as a huge risk for any investment in a GBP financial asset. I have kept enough in cash to cover my estimate of necessary expenditure for my life expectancy and then invested the rest in a good spread of equity based investments (without advisers!). I think that is lower risk than what you are proposing to do, but then risk, like beauty, is in the eye of the beholder!

[Howard]

To answer some of the qs and add some perspective, although it will probably sound crazy that I don't have professional advice given the numbers ....

I have aprrox £10m in cash + £1.25m in SIPP + Isas and a substantial mortgage free home. I have already made provision for my offspring, so am not too worried about them.

This probably sounds bonkers, but ....

Reading your second post puts a different perspective on your situation.

I'd echo Dodd's advice. At your age and with your available funds, you could now really enjoy giving away a million or three to charities. If you are a serious giver, it's great fun to talk to talk to the people at the top of charities, universities, schools etc to decide, using your obvious business skills, who you might support and how.

If you give away, say a million, you might be much more relaxed about a smaller loss from investments. And there will be tax benefits.

And that million (or three) given away will never go down! In fact if you choose the organisations you support well and give in instalments over the next few years, you'll be invited to participate in some really worthwhile activities and your donated "portfolio" will almost certainly pay handsome dividends!

Bonkers - but fun!

regards

Howard

[Wuffle]

Just to be on the safe side, have a chat with the kids.
It is one thing for you to think they are 'made provision for' but their perspective may be different and they will most likely be giving a version of the truth. Nobody ever tells the actual truth first time out.
As someone with autism, I recognise the difference between my truth and what is socially acceptable to say very well.
I have spent 50 years agonising over the difference.
From the brief outline of your position, some quite deep seated instinctive behaviours are present and their could be some spectacular misunderstandings going on.

W.

[hiriskpaul]

To answer some of the qs and add some perspective, although it will probably sound crazy that I don't have professional advice given the numbers ....

I have aprrox £10m in cash + £1.25m in SIPP + Isas and a substantial mortgage free home. I have already made provision for my offspring, so am not too worried about them.

This is all on the back of having had, to all intents and purposes, minimal investment income and no capital gains (apart from the house) and trusting nobody's advice, but being able to sleep at night and get on with the day job, because I am not worrying about gyrating markets or fund managers ripping me off.

I am very reluctant - even now and even with those numbers - to spend any capital, so was thinking to invest (say) £6m in 10 yr corp bonds to give me a guaranteed income of approx £350k until my late 70's and a more variable income from the £4m that I would probably keep on deposit.

This probably sounds bonkers, but ....

How much do you spend each year? It's all very well having £10m in cash, but there are plenty of activities that would allow you to burn through that quite quickly

You have not mentioned how the SIPP and ISAs are invested - cash or near cash too?

As I see it your current risks are 1) Default risk; 2) Inflation. Do you have more than £85k deposited in a bank? If so the excess is at risk. Should the bank fail your deposit would rank alongside other unsecured creditors. Anyone very risk averse should be cognisant of FSCS protection. You can use NS&I to shelter £1m per person in income bonds. A less risky home than banks for large amounts of cash are gilts. Hold relatively short dated gilts to maturity and you will guarantee a nominal gain. Some of these gilts have very low coupons as well (0.125%), so the return on the gilts will mostly be via a tax exempt capital gain.

To mitigate inflation risk, you could build a ladder of linkers with some of the cash. For a short period recently it was possible to buy linkers that gave a real return. This is still possible with longer dated (14y+) linkers, but shorter than that will mean locking in small real losses if you hold to maturity. The main downside of building a ladder of linkers is that should you want/need to cash in a bond before maturity you would have to accept the market price at the time and that may mean taking a real loss when you sell. As long as you pick the linkers with low coupons you will lose very little tax on the return.

You could go for a portfolio of corporate bonds. Many high quality bonds are now offering a reasonable spread over gilts. I would question whether these would be appropriate for someone very risk averse though as individual corporate bonds can exhibit significant price swings and there will always be non-zero default risk. Buying a corporate bond ETF, such as SLXX, might be a better approach for you as it will hide individual unpleasentness whilst diversifying your risk across a large number of issuers.

Alternatively, go for a combination of gilts/linkers and a small allocation to a global equities tracker, then avoid looking at the performance of the fund! Historically there are few 20 year periods where a global equities tracker, with dividends reinvested, would have lost money in real terms.

[OhNoNotimAgain]

Central question you need to tackle - what is your perspective on any legacy? Do you have people you want to leave money to when you are gone?

And is he healthy, that determines his investment horizon.

[1nvest]

I am now in my late 60s (sadly closer to 70 than 65) and am planning to retire in the next 12 months.

I am trying to work out a sensible retirement and am very taken with the idea of investing very heavily in blue-chip 10 year bonds currently offering around +/- 5.5%. I reckon the income from those will see me through v comfortably until my late 70s and will most likely provide a significant opportunity to increase my savings pot, even with inflation running high.

Rather than potentially buying a annuity now, and as you expect your savings value to maintain or even grow in real terms, defer the purchase of a annuity for a number of years and you'll get a higher payout rate on the basis of being older you're life expectancy will be shorter. So even if your expectations fall short and your savings lose say 20% in real terms, then you may find that having deferred the annuity purchase that the payout might be 25% higher such that your didn't actually lose out, and retained access to the capital for longer.

[CliffEdge]

If you had a 100 million it would be easier
If you had 1 million it would be easier

10 million is a funny number

[scrumpyjack]

Emigrate!

[Walkeia]

Your plan isn’t bonkers for yourself. You don’t need to worry on some slight capital slippage personally. There’s many options to provide a lower risk income and a lot of good advice has been provided.

If you haven’t touch your SIPP; I would not do so. My understanding is it is not IHT applicable if you pass before the age of 75; above 75 you can pass it on as a pension tax free to your children. You have enough capital that keeping this out of your estate is an easy ~360k IHT saving. I would def look into this further to confirm as my knowledge is a tad rusty.

2nd - as mentioned by others. I would have an IHT plan or at least discuss this with any kids. Ultimately; you said you want to preserve the capital value; but for who? This is important - if it is for grandkids say then a more balanced portfolio including more equities makes sense as their investment horizon is long term. I think pondering this question and speaking with the eventual owners of this capital is the key to your investment strategy and avoiding the 40% hit. You may decide actually you’d rather not go down this route - in which case I’d say spend and enjoy!

Wishing you the best whatever route you decide