Retirement help.....

[ChartMan]

My Uncle is retired, aged 74 and I am trying to offer some help for him. He has a capital of around £100K. An annuity sounds a bad deal to me, giving 7-8K income p.a. I have suggested an investment plan. He needs around 7-8K p.a. for living expenses, rent etc. My suggestion was this.
1. get a current account that pays a couple of % interest pa and put 8-10K into it , on an annual top up basis and draw it down monthly as required, plus a bit left over for extras.
2. Make some 'guaranteed return' investments, on a 1,2 and 3 year plan( or maybe a 5 yr plan and roll them down into the current account each year.

I estimate that at the end of year 1 , the 90K investment should have produced something like 5-6K in interest, leaving 85K for the next year etc.
So, the real question is this. Ignoring tax liabilities ( or minimising them) what should /could he be investing in? What is available in tax free investments?

Lastly, there are obviously a number of landlords on this BB. Is there anyone out there that has a 2 bed flat/apartment looking for a long term tennant? The property needs to be in Hants/Surrey borders, or Devon/Cornwall. Please use my personal email to contact me on this.

TIA.

 

[wysinawyg]

Chartman,

Is the £7-8k an inflation linked annuity? If so then if he needs £7-8k for living expenses he really shouldn't be doing anything other than buying that annuity. Is the possibility of an extra couple of grand a year worth the risk to him of ending up with nothing but a state pension/having to drastically alter his standard of living?

Not quite sure what you mean by "guaranteed return" investments. If you mean building society bonds etc. then fair enough. If you're talking about stock market linked things you need to be very careful as not all "guaranteed" products are actually guaranteed to return your original investment let alone a return. They basically involve 90-95% of the money in money market deposits (which your uncle could get a better rate on) and the rest on FTSE options (and if you wouldn't advise your Uncle to do that directly you probably shouldn't advise him to do it through a fund).

If you are talking about Building Society bonds then you need to do a cash flow and work out how long his money will last. From what you propose the loss of capital will accelerate and could quite conceivably see your Uncle outliving his money. He'll need to be really sure that he is happy with the prospect of having nothing if he lives that long.

Having said that the drawdown route has the benefit of giving some scope for him to change his mind (possibly even buying the annuity at a more advantageous rate later that more than makes up for the lower capital) but is definitely the riskier route for him.

wysi

 

[bonsai]

There seem to be very few sensible ways to avoid tax these days
when you have limited capital.

Premium Bonds for example are not what they used to be
The yield now is something like 2+%
ISA's of course, but you have to pick the right stocks.
Cash ISA's can yield 4.3%+
Simple 2/3 year bonds 4.5+%
Govt stocks 5/15 yr yield about 5%

Do I gather he does not have a private pension, but relies on state pension only ?
or
Make sure his Age Allowance will be covered.? Income is tax free up to this limit.

Watch out for the new Pension tax credit. If you can keep his income low, he can get quite a bit this way. Capital, I gather
is not part of the test.

Other thoughts
There are some good yields available with Convertible Stocks.

 

[jonnyy40]

E-Mail Working Lunch.

 

[ChartMan]

Not looked at Annuity in detail, just a ball park figure... By guaranteed investment I mean government bonds and things like that. Not shares!
Thanks so far.

 

[Harlosh]

If he can get 7-8k annuity from £100k the insurance company don't expect him to live for long. If he dies within the next few years, the insurance company get a nice bonus. Don't give them that satisfaction

 

[ChartMan]

That's my thinking, Harlosh. On the other hand, he may live to 100... but I think he's prepared to take a gamble on that...

 

[Car Key Boi]

tell him to do like the Car Key Boi

move out to the Caribbean

that 100k will seem like a couple of mil

TROOF!

 

[wysinawyg]

Have a look at this:

http://boards.fool.co.uk/Message.asp?mid=8029290

wysi

 

[al-motor]

Car key............ I have always heard that the carribean is an expensive place that people go for holidays ?!?!

Where specifically do u mean ?


Al

 

[madasafish]

There are a number of issues to consider.
As he grows older and less able to help himslf he may need a care home. You get zero UK help if your assetsa re greater than (I recall) around £16k. Annual costs are £20-£25k depending on where you live. So investments tied up for a long time MAY not be a good idea..

Worth speaking to someone from CAB or AGe Concern about care.. prevents you doing something totally unsuitable.

My advice for anyone of that age is to spend all your money whilst senile: the Government does structure care in old age to penalise those who have savings.. £500k will be OK, £100k buys you little..
Or move to Scoltland: the system there is much better (funded by the stoopid English..

 

[madasafish]

Sorry : spend all your money before becoming senile...

 

[stevet]

cash is king - so forget anything which does not have a goverment guarantee and just live within the means afforded by the money

there is no easy way for an individual to make money - but a lot of ways to lose it

if anything - look for anything which is goverment backed and inflation linked and easy to exit

 

[Kilnside]

Madasafish

Know the feeling

 

[Car Key Boi]

Car key............ I have always heard that the carribean is an expensive place that people go for holidays ?!?!

Where specifically do u mean ?


Al

well, the UK is an incredibly expensive place for vacations blah

this also applies to the Caribbean. If yuo're a tourist staying in 5 star hotels blah, yuo're gonna get ass-reamed at every available opportunity

but if yuo're living in the Carib, it's incredibly cheap. Food, clothes, gas, cigs, real estate, construction materials, construction labor, everything really, with the possible exception of industrial machinery, is dead cheap in comparison to US and especially the UK

 

[oarsman]

Putting the whole £100000 into an annuity would give him an income of about £9300 pa if it is level or £7570 pa escalating at 3% in the future. There is one company quoting £10500 level annuity but I am not sure if it is enhanced. If your uncle is a smoker or has a health problem he could get a better rate than this. As far as tax goes remember with a Purchased Life Annuity part of the income payment is considered to be return of capital so is not taxed. For your uncle on a level annuity, £8810 of the income generated is return of capital, so he would only pay tax on £490. If he is a non taxpayer the whole thing could be set up to pay gross.

Also what about a corporate bond ISA yielding anything between 4% to 8.5% tax free. £7000 this year and another £7000 next year. Capital not guaranteed and if interest rates rise would be likely to fall, though the income should remain fairly constant.

When it comes down to it it depends on how accessible he wants the money to be and if he needs any capital in the future, and how much risk he is prepared to take with his capital. Annuities are good for safe income but you have given away all your capital. You are also gambling with the insurer that you live longer than he reckons. The average life expectancy for a 74 year old male is just over 9 years. If he lives longer than this he has won!

 

[jonnyy40]

How much better is the rate for smokers?and how can they check?

 

[bgold]

Chartman,
KISS principle applies.
Put 80k in bank and give £20k to cousin in Fleet, to participate pro-rata in daytrading DOW. If cousin trades as he charts there will be no more worries, ever!!!!

PS. Can I join the scheme?

 

[MTger]

I am about to set up a limited company with preference shares paying 14% per annum, dividends paid six-monthly at £1000.

If he, or anyone else is seriously interested in this offer then please let me know.

 

[kinglatfan]

How about putting some money in cash savings for instant (or near instant) access and putting some money in high yielding Ftse30 Companies for income and capital growth.

This strategy was fashionable 3/4 years ago and is worth revisiting.

kinglatfan