Advice on Investing a lump-sum for income in early retirement

[floyd3592]

Hi

Just started a ‘mostly retired’ lifestyle back in the UK having saved (but not necessarily ‘invested’ per se) assiduously over the years and squirreled away a lot of my (admittedly pretty high) expat salaries for the last 10 years or so. I work(ed) in offshore oil and gas engineering and hope to pick up some short term (3 or 4 months at a time) contract work occasionally, but as the price of oil is still slumped I can’t see much opportunity for that in the next few years.

My portfolio is as follows: -
107k in ISAs / Peps (28k cash; 55k trackers (L&G); 24k managed funds)
356k GBP Cash
185k USD Cash
3-bed property in Spain,
2-bed property in Peterborough
4 bed property (family home, although the kids have left)


I intend to let out the property in Spain for 6 months or so a year over the winter which will pull in approximately 4250 Euros (350 a month averaged for a year). I’m anticipating that the 2 bedroom house in Peterborough should bring in about £650 a month in letting fees when my son who presently resides there moves out.

The aim is to get about £3,000 worth of income a month after tax. I have a couple of employer pensions, one of which will start paying me approximately £4.5k a year when I reach 62 (in five years time) and another which will pay me £3.7k a year when I reach 65 and my state pension kick in when I’m 66.

What would be the best way to invest the ISA’s and cash to maximise income for me and my wife?

The options I have been considering have been a basket of Investment Trusts, Vanguard income or life strategy funds or following an income portfolio along the lines of the Questor portfolio in the Telegraph and perhaps having some exposure to fund managers like Woodford and / or Nick Train. I would like to invest about 100,000 of the USD to gain an income in USD as I can see myself spending a couple of months a year there and as a currency hedge.

What are everyone’s thoughts on this? I’m worried that my approach might be too ‘scattergun’ and I’m also very aware of the need maximise my tax allowances, i.e. does anyone know if I could ‘lumpsum’ 100k into a vanguard tracker to reduce fees now and then drip feed from the investment as ISAs each tax year.

[JohnB]

If you do get contract work, make sure your personal company/umbrella company allows you to put it all in a SIPP to avoid paying tax on any of it, and NI on most.

Your UK NI record is likely to be poor, you could buy extra years, which is a good investment, if not as good a deal as a few years back.

Move your ISA cash into equity. The income tax saving won't be much, but you can start avoiding the capital gains

[dspp]

Hi

Just started a ‘mostly retired’ lifestyle back in the UK having saved ........

You may find it helpful to read through back-posts on the Portfolio Management & Review board viewforum.php?f=56 .

regards, dspp

[xxd09]

Hi Floyd
You have some work to do!
Leave everything as it is and take 6months or a year to educate yourself
Read this website,Monevator and John Bogle,s(Vanguard) latest book on investing-good on index trackers.
No rush- these are serious long lasting decisions to be made
Keep asking questions
Good luck
xxd09

[Dod101]

When I retired at a slightly earlier age than you having been abroad for most of my working life, I bought two or three generalist ITs (Alliance, F & C, Witan although nowadays I would be buying Finsbury and Scottish Mortgage). I then stumbled upon a variation of the HYP. You need income so getting your feet wet with a few ITs and then venturing into a High Yield Portfolio (per the Boards of that name) is the way I would go.

You have a fair spread of income producing assets but a HYP is what I would do. I am happy to recommend that as I have been successfully living off on for 20 years or so.

Dod

[JohnB]

Books I'd recommend, Lars Kroijer's Investing Demystified, Tim Hale's Smarter Investing

[BarrenWuffett]

What would be the best way to invest the ISA’s and cash to maximise income for me and my wife?

Personally, with equity markets mostly at all time highs, I would be looking to protect against the downside. Maybe look to drip-feed your cash into the investments over a prolonged period and look at the likes of Capital Gearing Trust, Personal Assets as well as lower equity mixed assets such as Vanguard Lifestrategy 20/40.

In the current climate, going for natural yield from equities would be high risk..OK you get your 4% income but maybe lose 20% of capital when the downturn hits.

For more suggestions on an income strategy I suggest 'DIY Income' by J Edwards. The main thing is to be comfortable that you know what you are doing and have a solid strategy you can stick with through all the ups and downs.

[Dod101]

Personally, with equity markets mostly at all time highs, I would be looking to protect against the downside. Maybe look to drip-feed your cash into the investments over a prolonged period and look at the likes of Capital Gearing Trust, Personal Assets as well as lower equity mixed assets such as Vanguard Lifestrategy 20/40.

In the current climate, going for natural yield from equities would be high risk..OK you get your 4% income but maybe lose 20% of capital when the downturn hits.

Nobody is going to get much income from Personal Assets (yield 1.3%) I do not know about Capital Gearing Trust, but if it is a wealth preserver I do not expect it will be giving much income either. Neither seem to me to be much good for maximising income.

Why would going for the natural yield be high risk? If the OP can persuade himself not to be too bothered by fluctuations in the capital values, it is not a high risk to take the natural yield. it is income he is looking for. Depending on your view of markets any investment might be considered high risk. Through good times and not so good I have found a HYP type strategy to work very well which is why I recommended looking at it.

Dod

[dspp]

Hi

Just started a ‘mostly retired’ lifestyle back in the UK having saved ........

You may find it helpful to read through back-posts on the Portfolio Management & Review board viewforum.php?f=56 .

regards, dspp

You might also find it useful to read some of the comments on the Maximising Tax Free Income thread on the HYP boards viewtopic.php?f=15&p=93826#p93826

A particular point for you to bear in mind is that if you were to go heavily into the HYP route (which I personally would suggest you approach very cautiously) then the likelihood of you hitting CGT events due to normal corporate activity occurrences that are out-of-your-control in the market is quite high. You have relatively little funds inside ISAs, quite a lot outside ISAs, and there is a £20k/yr choke on what you can get from outside to inside. An advantage of index trackers is that you minimise your exposure to out-of-your-control corporate activity.

regards, dspp

[StepOne]

If you are married then you can get 40k a year into ISAs, which helps a lot, assuming you stay married!

Also worth getting a state pension forecast to make sure you are getting full entitlement.

StepOne

[LooseCannon101]

If I were in your position I would -

1. Top up my national insurance contributions to maximise my state pension. Also, I would obtain a future value projection from www.gov.uk/state pension.

2. Move all my ISAs (cash and funds) to one or more highly diversified global equity investment trusts e.g. Witan, Alliance, Foreign and Colonial held within their own ISA savings plan(s).

3. Add maximum yearly ISA, say £20k per year for each of you and your wife to the above trust(s), and re-invest dividends. A disciplined approach e.g. monthly direct debit would probably be best. After 5-7 years, stop adding to savings plan, but continue with dividend re-investment.

This should leave you with a tax-sheltered world equity portfolio, investment property and cash in addition to various pensions.

[tjh290633]

2. Move all my ISAs (cash and funds) to one or more highly diversified global equity investment trusts e.g. Witan, Alliance, Foreign and Colonial held within their own ISA savings plan(s).

You may be thinking of trying to keep within the compensation limits of FSCS, but it will be an expensive way of doing it.

You are going to have annual management fees from each one, whereas you could be in an ISA with low or zero fees and also low transaction costs. Alliance Trust Savings is relatively low cost, but their organisation of accounts is a bit labyrinthine.

TJH

[syrio]

Some very quick first thoughts.

Congratulations, on retiring.

You do seem to have a bit of a scattergun approach.

Might be easier for everyone, including yourself if you made everything a bit more consistent, e.g. list everything in GBP, and all the income amounts in terms of £'s per year. And add them all up for as so as to show what the shortfall is. Better than making everyone try and work it out for themself, I started on this, but couldn't be bothered.

You should try and get the maximum into your ISA in the future. Similarly you should try and get money into a SIPP if you can get tax relief on it.

You have too much cash.

You have too much property. You don't give any indication of what your properties are worth, and what your CGT situation would be if you sell them.

How old are you? This is quite an inmportant factor, because nobody knows how long it will take before your pensions pay out.

I second the advice to read Smarter Investing and / or Investing Demystified for starters. And take your time.

Regarding USD currency hedging - I wouldn't worry about it for the equity part of your portfolio, but you might want to consider having some US bonds or cash.

I would suggest a Vanguard Lifestrategy fund as probably your best approach. Avoid active fund managers. Don't run your own income portfolio, or go for Investment trusts, even though a lot of people here are keen on them.

Yes, of course you could invest 100k, or any other amount into a Vanguard fund now, and then sell and move the money into an ISA each year. Being careful to avoid CGT on the sells of course, but probably not too much of a problem.

[Kantwebefriends]

Check whether your foreign earnings in the current UK tax year entitle you to make any contributions to (say) a SIPP.

For the US cash I'd look at putting a fair whack into TIPS: they pay much better than their nearest UK equivalent i.e. index-linked gilts (or they did last time I looked). How about some commodities including gold? No income from them but a hope for capital gains.

For the defensive part of your GBP portfolio I'd look at high interest current accounts, regular savers and premium bonds. They wouldn't pay much income but they would keep part of your wealth secure except from inflation. And you need to get a decent chunk of your wealth into equities. Unfortunately this may not be a good time to do that, especially in the US. Maybe bias your investments to the Far East?

Check how large the actuarial reduction would be for taking each of your old pensions early. If it's small enough, consider drawing the pension(s) while arranging that most of your investment income is either tax-sheltered or going to your wife.

If you insist on income rather than hoping just to realise a flow of capital gains, you could take a look at the fund investments that pay a high income by essentially giving up part of their future capital growth. Some of them are recognisable by including "income maximiser" in their names.