/ Retirement planning: mum has no pension

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goosebump - on 25 Nov 2013
Morning all,
Chatting with me mum over the weekend and she is on the point of selling up and downsizing, leaving her with (hopefully) £300K, plus a state pension in six years time. She is in part time work just now but would like to stop since she suffers a bit with a buggered immmune system.

Google gives millions results for "retirement planning"! Anyone got any recommended sources of info before I wade in?

Its perhaps worth adding my mum is infuriating when it comes to financial matters. Or maths generally...
highclimber - on 25 Nov 2013
In reply to goosebump:

I'm no expert but £300k is one hell of a pension. She wouldn't need to claim the state pension if she just banked the capital from downsizing. She could even invest some of that and still have a healthy income from the capital left over (assuming the investment craps out...which it probably wouldn't).
goosebump - on 25 Nov 2013
In reply to highclimber:

Can you really get a healthy income off anything currently though? And if she sticks around for another 40 years then it looks to be less of a wad.

Trangia - on 25 Nov 2013
In reply to highclimber:

> I'm no expert but £300k is one hell of a pension.

Is it? Depending on how adventurous she is it's not going to produce a massive income. It all depends on her attitude towards risk, but from what the OP says she is not financially "savy", so a "Safe" investment like a Building Society or similar account is likely to produce £6000 pa at 2%. add the state pension and that means she will have approx £1000 a month to live on.

OK that's comfortable but it doesn't leave much for contingencies, running a car if she does, the occasional holiday etc, not to mention the effect of inflation and rising fuel bills over the years.

Retiring on a pension should mean more than just existing. If you are going to have a reasonable, not excessive, life style you will need more than £12,000 pa.

Bob Hughes - on 25 Nov 2013
In reply to goosebump:

Exactly. 3% of 300k gets you 9 grand a year. Plus a state pension and she could get by OK.
ByEek - on 25 Nov 2013
In reply to highclimber:

> I'm no expert but £300k is one hell of a pension.

I wouldn't go that far. Our adviser basically says that whatever you want to retire on, simply multiply by 25 and that is what your pot needs to be so £300k will yield about £12 - £15k a year. Not bad though.

My advice would be to seek advice from an IFA. Get a recommendation from a friend or colleague. Since I started doing my pension planning through an IFA, my pop has gone from something that was quite dismal to something that has me almost looking forward to retirement... in 30+ years!
highclimber - on 25 Nov 2013
In reply to ByEek:

we don't know how old she is either. retiring at 55, say, will mean that 300k isn't as good as if you retire at 65. then again I suppose it really depends on how long you live 'til.
Flinticus - on 25 Nov 2013
In reply to goosebump:

First thing: has she got a State Pension forecast? Will it be less than the full basic state pension, or more (from SERPS or S2P). She has worked and may have paid enough National Insurance contributions to get extra over the basic so her state pension could be £5,800+. You can apply for the forecast online.

What's her income tax position likely to be in retirement? If paying basic rate tax on any saving income, you should consider using her ISA allowances (£11,520 per annum but if a year's allowance is unused it cannot be carried forward so she should start using this allowance straight away with any current savings) as any income would be tax free. However interest rates will be low (as they are anyway across all cash accounts).

But, yeah, seeing an adviser should help however be wary of them: as said below they need to establish how she feels about financial risk as well as her likely need in retirement and identify what the shortfall will be between her annual expenditure and net pension income.
goosebump - on 25 Nov 2013
In reply to Flinticus:

Thanks all. No she hasnt got a state pension forecast to my knowledge, and will be sixty next year. I did badger her about getting some financial advice, but I think she is wary since the last time she did so (she has £100k in the bank) her funds were invested in shares which she was supposed to manage. She didnt realise that was the case, so there they sat doing not much, but thankfully not losing value either.
I will continue to pester.
I presume there are IFAs who specialise in retirement plans? Never used one myself so have little idea.
Flinticus - on 25 Nov 2013
In reply to goosebump:

Well, get her to get a forecast. If she has cash in the bank, find out what her interest rate is and what interest rate her bank is offering on it's cash ISA account (cash ISA max limit per annum is £5,760) and have a look at this, http://www.moneysupermarket.com/investments/isas/ or similar, to see if a better rate is available elsewhere.

Try to establish what she could afford to put anyway without access for 1 yr, 2 yrs, and so on, as fixed term cash bonds should offer higher interest rates for giving up access for the fixed term. Anything not likely to be needed within, say 3 / 4 / 5 years could be invested for growth.

Any good adviser will NOT invest (in equities, shares, investment funds etc) cash that a client will likely need within the short term.
planetmarshall on 25 Nov 2013
In reply to Trangia:

> It all depends on her attitude towards risk, but from what the OP says she is not financially "savy", so a "Safe" investment like a Building Society or similar account is likely to produce £6000 pa at 2%.

Indeed, however 2% is incredibly conservative, to the point of pessimistic. A so called 'risk free' investment, such as a government bond would outperform that rate (at current prices, you can get a 7 year UK Treasury Gilt with a yield of 2.21%). It's worthwhile getting some good investment advice. In "The Long and the Short of it", John Kay suggests that an individual making their own investments should be aiming for around 10% per year. A professional advisor should be able to at least match this.

In reply to planetmarshall:

Makes for interesting reading, makes me think about my own future.
JJL - on 25 Nov 2013
In reply to planetmarshall:

> In "The Long and the Short of it", John Kay suggests that an individual making their own investments should be aiming for around 10% per year. A professional advisor should be able to at least match this.

10% reliably? Bollox

http://www.economist.com/blogs/buttonwood/2013/09/investing
planetmarshall on 25 Nov 2013
In reply to JJL:

> 10% reliably? Bollox


The first sentence in that article asks the question "What is the best estimate of future investment returns?" A good question, but not that relevant to the OP. The best estimate is the average case, and a professional investment adviser charging for his services should be doing a lot better than average or he won't be an investment adviser for very long.

That said, I'm no expert. John Kay is a professor of economics at the LSE and if he thinks that 10% is achievable I'm inclined to believe him.
marsbar - on 25 Nov 2013
In reply to goosebump:

Would it be worth her investing some of her money in property? Maybe a rental property or holiday let would get her a better return?
Jim C - on 25 Nov 2013
In reply to marsbar:

> Would it be worth her investing some of her money in property? Maybe a rental property or holiday let would get her a better return?

Risky, depends where she lives I guess, despite what you hear on TV about house prices gaining, my eldest just sold her home , it went for 15k under valuation( eventually)

My other daughter gave up on her flat as it was not gaining any equity after 5 years and she just about broke even, she is now back at home at 27 , saving for a deposit for the larger home that she wants, but would never get as the outgoings on the flat were too much, with no equity going into her flat.

Other larger homes built near us, are still for sale ( or rent) and I know one home that was advertised at nearly 100k less that it was purchased at the top of the market a few years back.

Trangia - on 25 Nov 2013
In reply to planetmarshall:

>

> That said, I'm no expert. John Kay is a professor of economics at the LSE and if he thinks that 10% is achievable I'm inclined to believe him.


I actually invested my max ISA allowance for each of the last 2 years with Co-Funds which has brought in just over 10% pa.

But I appreciate it's a bit of a risk and may not be suitable for the OP's mother. I was getting 2.75% from building society ISA's, but they were reduced to 2.1 % last year and 1.75 % this year, hence my switch to Stocks and Shares ISAs
marsbar - on 25 Nov 2013
In reply to Jim C:

I wasn't very clear, I meant rental income, not house price rises.
Jim C - on 25 Nov 2013
In reply to Flinticus:

> Any good adviser will NOT invest (in equities, shares, investment funds etc) cash that a client will likely need within the short term.

Should any 'good' advisor not be retired by taking their own 'good' advice, instead of advising others?

If you get an investment 'opportunity' via post or email you are rightly sceptical ( if it was that good an investment, why would they offer it to you)

Why are we less sceptical when someone has an office and calls themselves a IFA?
There is also a good chance that there will be a scam dealing with anyone in financial services .

Just how independent are these advisors, do they just get money from you for the advice given, or do they also get money from those that you are advised to invest in?

I trust no one .


altirando - on 25 Nov 2013
In reply to goosebump: Interest rates are lower than inflation so I don't think I would put more than an emergency fund into a deposit account. Annuity rates are poor too - at one time it was possible to get a guaranteed 14%!!!! Rental property seems attractive as one can rely on one's own judgement rather than that of an advisor on commission.

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goosebump - on 26 Nov 2013
Thanks everyone for the additional replies. Mum has considered property, and seems to think it is a no-brainer. Im trying to balance things out a bit by highlighting the other ways she could invest. To be honest Im not sure where she would buy as an investment - she lives in commuter belt Essex, I live in north wales, she has spoken about getting a flat near her or a holiday let up here.
Im aware property is a minefield though, working out what sort of return you might get is tricky with taxes, empty periods, maintenance, insurance, management etc. And your cash is hard (impossible) to get if you all of a sudden needed it.
M0nkey - on 26 Nov 2013
In reply to goosebump:

If she has 100k sitting she could make a good start with that. She needs to use her ISA allowances all first. She should set some money aside to make sure she uses her allowances for the next few years. I think a small rental property would be an excellent choice if you can find the right area. I've a lot of friends at the minute who are buying up a lot of small 2 and 3 bed terraces for 30-40k, which are generating £300-£400 rental per month which is a bit of a no brainer even without capital growth.

I'd steer well clear of annuities though the rates are shocking at present.
Flinticus - on 26 Nov 2013
In reply to planetmarshall:

You are falling into the trap thinking becuse you pay for something it must be worth it. They stay in business because most people do not understand investments / pensions etc and because the whole system is too engrained to be challenged.

See this article: http://www.forbes.com/sites/rickferri/2012/03/12/why-smart-people-fail-to-beat-the-market/

Quote 'Burton Malkielís book, A Random Walk Down Wall Street. The Princeton Professor wrote in his book that ďa blindfolded monkey throwing darts at a newspaperís financial pages could select a portfolio that would do just as well as one carefully selected by experts.Ē

"There has been, and always will be, a minority set of investors who beat the market. The question is whether their good fortune is a result of luck or skill? The academic data suggests that most outperformance is a result of good luck.

Greek shipping tycoon Aristotle Onassis once observed that, ďThe secret of success in business is knowing something no one else knows.Ē Like Onassis, we know there are people in the world that have access to superior information and will make money because of it. We just donít know who they are, and it may not matter even if we did. Onassis wouldnít have managed my money even if I did know him.

I donít have access to superior information. I read the same journals, papers, blogs, and research as everyone else. My advantage is that I know what I donít know, and unlike most investment advisors, I donít have to make believe I know more. My portfolio is diversified among low-cost index funds that track the markets."

You don't need an adviser to track markets: there are plenty of funds that will do that for a very low cost.

As for 10%, that is way above anything the actual practicising investment experts in the company I work for would say is realistically achievable. Of course' its achievable per ses, but extremly unlikely. If someone is offering 10% returns its probably a Ponzi scheme!
planetmarshall on 26 Nov 2013
In reply to Flinticus:


> As for 10%, that is way above anything the actual practicising investment experts in the company I work for would say is realistically achievable.

Are these the same experts throwing darts at the financial pages?

In any case, I did not say that 10% was likely - indeed, if it were 'likely', then assuming the efficient market hypothesis 10% would be the risk-free rate - rather that it's an achievable target for a private investor to aim for.

My advice to the OP stands - seek professional advice.
Flinticus - on 26 Nov 2013
In reply to planetmarshall:

The experts in my company go by the understanding that the market is unpredictable and that today's gold star fund is tomorrow's junk so they play it relatively safe: that's why they don't quote 10% returns.

You didn't use the word 'likely, but saying 'a professional advisor should be able to at least match this', implies it. In fact you indicate returns of more than 10%, aaying 'at least', so 10%+.

I say seek professional advice too, but steer away from anyone offering returns of at least 10% per annum.
franksnb - on 26 Nov 2013
In reply to goosebump:

FYI bank of scotland are doing 3% on your current acc if you have 5k+ in it and 1k goes in every month. no risk 3%. its called vantage, I dont work there.
JimR - on 26 Nov 2013
In reply to goosebump:

Buy two properties at c£250K borrow £200K on buy to let, income should be c £25K pa, cost say £15K (Insurance+interest+agents fees). Get income and retain capital. Overlonger term also pick up capital gains. If capital required then sell a house.
colina - on 26 Nov 2013
In reply to goosebump:

not much guaranteed interest on anything these days and with your mum still quite young and hopefully having a long life ahead of her so 300k, although a lot of money wont last forever if she starts dipping in!
stating the bleeding obvious really !
let us know wot she decides ..wd be interesting to know wot direction she goes in.
JJL - on 27 Nov 2013
In reply to planetmarshall:


> That said, I'm no expert. John Kay is a professor of economics at the LSE and if he thinks that 10% is achievable I'm inclined to believe him.

If he could get a reliable 10% he wouldn't be prof of economics, he'd be warren buffet
ByEek - on 27 Nov 2013
In reply to JimR:

But
> Buy two properties at c£250K borrow £200K on buy to let, income should be c £25K pa, cost say £15K (Insurance+interest+agents fees). Get income and retain capital. Overlonger term also pick up capital gains. If capital required then sell a house.

Isn't that quite a risky investment though? After all, you may end up with tenants like us who move into an area with a view to buying, sign a 6 month tenancy agreement and then bugger off after that term, leaving the house empty for a month or so whilst new tenants are sought and letting agent fees accumulate.
M0nkey - on 27 Nov 2013
In reply to ByEek:

> But

> Isn't that quite a risky investment though? After all, you may end up with tenants like us who move into an area with a view to buying, sign a 6 month tenancy agreement and then bugger off after that term, leaving the house empty for a month or so whilst new tenants are sought and letting agent fees accumulate.

I agree. Smaller houses generate proportionally more return in my area at least. I presume (london excluded) the rest of the UK is much the same. By way of example my friend has a £40,000 house he is getting £400 for and I have one worth £150,000 which is getting me £725. I'd far rather have 3 or 4 of his houses than one of mine. Lower risk and higher return as far as I can see.
cuppatea on 27 Nov 2013
In reply to goosebump:

I logged out of hotmail and saw this headline

TrustBuddy: new peer-to-peer site promises 12% returns

http://money.uk.msn.com/make-money/trustbuddy-new-peer-to-peer-site-promises-12percent-returns

I dimly remember Radio 2 talking about "bank of Dave" or something similar in this country.

Caveat emptor and all that, but it might be worth a research.

(what is the latin for let the lender beware?)
Jim C - on 27 Nov 2013
In reply to franksnb:

> FYI bank of scotland are doing 3% on your current acc if you have 5k+ in it and 1k goes in every month. no risk 3%. its called vantage, I dont work there.

Hmm. If the new internal investigation (and that by the fraud squad ) finds they fraudulently closed business's to sieze their assets, RBS might not have the wherewithal to offer good rates.

I'm giving them a wide bearth.
Mick r - on 28 Nov 2013
In reply to JJL:

10% is relatively easy over the long term if you take into account capital gains as well as yield. lots of FTSE 100 and 250 companies with dividend yields over 5%, so just need to incorporate general rise in stock prices over the longer time to get your 10% plus. just need to keep on top of your portfolio, spread your investments and accept your losses when they occur.

for something less risky, Marlborough High Yield bond has a yield of over 9% at the minute.

http://www.hl.co.uk/funds/fund-discounts,-prices--and--factsheets/search-results/m/marlborough-high-...

the value of your investments may go down as well as up, but wtf, it will still pay 9% of your original capital, and if you keep it "ad infinitum, its only your kids that are worried about the capital

Should also look into PIBS/preference shares. Co-Op retail bondholders were looking a bit shaky earlier this year but they have come out of it OK. lots of these paying over 7% with a couple of LLoyds ECN paying 10%. Again, spread your investments so if one does go tits up, you're no going to loose the lot

http://www.fixedincomeinvestments.org.uk/home/fixed-income-prices-and-yields


on a general note

- Do Not buy an annuity - crap returns, and they keep you're money
- Max your ISA allowance (currently around 11.5k per annum) all your income will be tax free
- do not worry about eroding your capital. waste of time keeling over with 300k in bank
- you will not need as much when your 85 as when you're 65. enjoy the Caribbean Cruise while you still can
- if you are investing in "buy to let" returns are better on smaller or low cost properties, but does your mum really want the hassle of being a landlord? current yields are around 7%, so if your not interested in capital gains, there are a lot easier ways of getting your monthly income (see above)

and the reason why IFA's are still working is that you need 3 to 500K to make a comfortable living from your investments in the first place. Assume most of them don't have this otherwise they wouldn't be indulging in the rat race

thomm - on 28 Nov 2013
Some good and interesting advice on here, but the idea that a 10% long-term return is easy is nonsense. You can easily make 15% in a year like 2013, but you can easily lose 40% in a year like 2008. A long-term return of maybe 4% above inflation (don't forget that!) is more realistic for a balanced portfolio. Some simple combination of decently-yielding shares (preferably broad indices), property (maybe) and safe bonds might be a good bet, making an effort to minimize fees and taxes, not that I am 'qualified' to give advice of course.

profitofdoom on 28 Nov 2013
In reply to goosebump:

I wonder when interest rates are going to go up again.

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