£30k , can it generate £200 per month for next 5 years

[frugal90]

My wife has a SIPP valued at £125k

The SIPP is now 100% cash .

The purpose of the SIPP is to cover the next 5 years until she draws her teachers pension aged 60.

She is going to buy a 5 year fixed annuity who will buy her about £21k per year and take 25% tax free

So that gives her just over £30K .

We will shelter that £30k in her and my ISAs.

We want to try and create an extra £200 per month income, tax free, so £2400 per year .

Where would you head and why?

Things being considered at the moment are Lgen, Mng, phnx, bhp, Rio, and glen. All high yielders at the moment.

This will be happening in August!!

Looking forward to suggestions!

[monabri]

How about
(1) a percentage in fixed income via Preference shares? Example GACA

https://www.hl.co.uk/shares/shares-sear ... -irrd-gbp1

Downsides..shareprice falls further if interest rates increase. Fixed return
Upside...shareprice increases if rates fall.


(2) high rate bonds such as NCYF
https://www.hl.co.uk/shares/shares-sear ... td-ord-npv

Some discussion on bonds
viewtopic.php?p=602186#p602186


(3) REITs such as PHP

https://www.hl.co.uk/shares/shares-sear ... ary-shares

Hopefully a secure income with potential for dividend increases in future years.

(4) Investment Trusts such as HFEL
https://www.hl.co.uk/shares/shares-sear ... td-ord-npv

High yield Investment Trust, not UK .Downside...overall total return might not be positive. Upside, overall total return might be very good! Is now a good time to buy?

[monabri]

Things being considered at the moment are Lgen, Mng, phnx, bhp, Rio, and glen. All high yielders at the moment.

Looking forward to suggestions!

50% of your choices are miners...I'd limit that to one , maybe two, each getting the same Investment amount.

LGEN..PHNX..MNG with a skew in money towards LGEN ( personally I wouldn't chose MNG).

[DrFfybes]

My wife has a SIPP valued at £125k

She is going to buy a 5 year fixed annuity who will buy her about £21k per year and take 25% tax free

So that gives her just over £30K .

We will shelter that £30k in her and my ISAs.

We want to try and create an extra £200 per month income, tax free, so £2400 per year .

£94k gets you £21k pa for 5 years, so £105k? - Is that level, or index linked? If it is level then several platforms are paying 3% or more for cash in a SIPP, why bother with an annuity, just take cash out ad hoc as you need/want it.

The alternative is to put the whole lot into a High Yield Bond fund, that will generate about half of your required income and you'd need to sell down about £10k rising to -£15k pa to maintain the income you want, chances are you'd end up with more than £30k at the end.

Paul

[Darka]

We want to try and create an extra £200 per month income, tax free, so £2400 per year .

Where would you head and why?

Things being considered at the moment are Lgen, Mng, phnx, bhp, Rio, and glen. All high yielders at the moment.

You'd need a return of 8%, which is doable but probably a bit risky.

Do you need the £30k to maintain its value?

[frugal90]

Originally the £30k was going to be used as part of the drawdown. So yes if £30k is worth less at the end of five years then that is ok. Prefer it not to be!!

[Itsallaguess]

You'd need a return of 8%, which is doable but probably a bit risky.

Do you need the £30k to maintain its value?

Originally the £30k was going to be used as part of the drawdown.

So yes if £30k is worth less at the end of five years then that is OK. Prefer it not to be!!

An interesting near-term dilemma, but even beyond the idea of a potentially 'low-risk' (to income and capital...) yield-based return of 8%, I think the 'next five years' aspect of this conundrum, along with the fact that any answer is presumably needing to be fairly 'firm' in terms of actual-income-delivery, means that surely this must be seen as adding an extra layer of risk to the whole high-yield proposal, perhaps...

If we take the worst-case 'completely cash' avenue, then 5-years at £200 per month is a capital loss of £12,000 from that initial £30K of capital, whilst delivering the required £200 monthly income with a 100% certainty, but also definitely losing 40% of the initial funds in the process...

With current Cash ISA rates being much better than recent years, with 5.5% currently being available at both a one-year and a three-year fix (https://www.moneysavingexpert.com/savings/best-cash-isa/), I thought I'd take a look at the following cash-based scenario and see how much of a 'guaranteed' outcome could be delivered by using a two-Cash-ISA ladder, with one Cash-ISA for Years 2 and 3, and an additional one for Years 4 and 5, and with the initial Year 1 £2400 cash requirement being removed initially from the £30K -




Source - My own spreadsheet

The 1-year 5.5% fix Cash ISA above has been initially funded with the minimum required to deliver £2400 for both Year 2 and Year 3 (£4550), with all the remaining capital then put into a 3-year fix Cash ISA (£23,050), both invested at the start in a husband/wife Cash-ISA split.

The above Cash-ISA ladder plan would guarantee the availability of the required £2400 over each of the next five years, and with an improved end-capital position of £22,266.25, equating to a capital loss on the initial £30K of 25.78%, which is an improved position on the first 'hard-cash' calculation of losing 40% of the initial £30K of capital..

Given the capital and income-related risk of exposing £30K to really quite high-yield investment candidates, where there is not only a risk to the whole of the underlying invested capital, but also of the 'required' 5-years worth of monthly income, and given that the OP seems to accept already that it's 'OK' if there's some capital loss at the end of the 5-year period, I thought it might be worth showing the above Cash ISA ladder proposal, given that there would be a very high level of 'certainty of outcome' by using such an approach, and where the OP is looking for a plan to part-fund a near-term 5-year retirement period, I think there might be a point where some level of 'certainty' might outweigh some level of risk-based 'potential' of an alternative, near-term 'market-exposure' side of things...

Either way, I hope at least that seeing the above cash-based calculations might help to at least more fully inform the OP in any final decision that he makes.

Cheers,

Itsallaguess

[Gerry557]

£30000 / 60 = £500.

So yes doable if you are not worried about maintain capital.

At 5% interest you would get £125 a month.

It also depends on how critical that extra £200 per month is. Is it to pay the mortgage or bills or for life's litte luxuries that don't have to be purchased if times were difficult.

Investing might provide a solution but it can be more risky and not guaranteed.

I hold HFEL and whilst it has provided the income and increased it the capital has fallen further. Currently I'd have been better off if I hadn't invested! Maybe I timed it wrong but dyor.

REITS offer high yield and some are better than others. I've added SREI and Epic recently. The latter offers monthly income but there is a potential for a cut in dividend so I wouldn't recommend that. SREI has increased it's dividend and is fully covered, and rate rises should have very limited effect on operations but sentiment might knock the share price.

I have also added LGEN so obviously thought it was OK but the ex divi is close. It might rise leading up to that date.

As with most investments there is a risk of a company doing a BP and having a nightmare scenario. So a mix of investments might be wise.

Also do you need that income monthly or is the annual amount fine. LGEN for instance will provide it's dividend twice yearly and split 2 thirds and 1 third. SREI is more even quarterly.

You might have to decide how to deal with any shortfall. If its all invested and you need an extra £100 that particular month, it's not really that simple to raise that by selling something. You might have selling costs and a decision to make over what to sell and what to do about the lower income later from less shares.

A cash buffer might be useful.

There is some good news, the dividends could rise over time so less than average in year 1 but more in year 5.

Good luck with your plans.

[CliffEdge]

I'd bung it all in premium bonds and take out £200 a month.

[tjh290633]

So that gives her just over £30K .

We will shelter that £30k in her and my ISAs.

We want to try and create an extra £200 per month income, tax free, so £2400 per year .

Where would you head and why?

Things being considered at the moment are Lgen, Mng, phnx, bhp, Rio, and glen. All high yielders at the moment.

This will be happening in August!!

Looking forward to suggestions!

You will find that the income from the miners can vary a lot. One, maybe, but diversify. Likewise one insurer. Think of tobacco, supermarkets, property, oil, etc. Woodside Energy has a ridiculously high yield. One of the big box properties might be suitable.

We don't know where the market will be in a few year's time, but you will want the capital and the income to grow for years to come. This is not just an interim investment.

TJH

[CliffEdge]

So that gives her just over £30K .

We will shelter that £30k in her and my ISAs.

We want to try and create an extra £200 per month income, tax free, so £2400 per year .

Where would you head and why?

Things being considered at the moment are Lgen, Mng, phnx, bhp, Rio, and glen. All high yielders at the moment.

This will be happening in August!!

Looking forward to suggestions!

You will find that the income from the miners can vary a lot. One, maybe, but diversify. Likewise one insurer. Think of tobacco, supermarkets, property, oil, etc. Woodside Energy has a ridiculously high yield. One of the big box properties might be suitable.

We don't know where the market will be in a few year's time, but you will want the capital and the income to grow for years to come. This is not just an interim investment.

TJH

I thought it was just until the teacher pension came along and had to be 100% guaranteed. I stand corrected.

[frugal90]

thanks for all of the responses and suggestions, lots of reading and thinking to be done

we have a cash buffer so all good there

keep the ideas flowing, this forum is great

[monabri]

China...economy slowing down. Not good news for miners.

[Wuffle]

I am aware that this is harsh.
If it helps, I am on the spectrum.
A close teacher friend just laughs that this wasn't a thing in the 70's when compared to the world she inhabits today.
So I am hoping to get away with it given the background here.

You have a job. It comes with certainty of income, which apparently you want.
You are proposing to go unicorn hunting in 'retirementland'.
I wouldn't expect my young nephew to get away with this in a classroom.
The fundamentals of logic are being left behind by the teacher.

W.

[vand]

that's a 8% cashflow, which should be possible, given where inflation, bond yields and current UK stock valuations are at present... the market is priced to delivered high single-digit cashflows over 5 years.

If you caveat that with an inflation-adjusted £200pm then that is a significantly higher hurdle.

[GoSeigen]

We want to try and create an extra £200 per month income, tax free, so £2400 per year .

Where would you head and why?

Your target is too ambitious. You should be aiming for 5-6% tops (assuming inflation settles back to LT 2-3% average).

Yes, buy shares, especially if you can invest for much longer that five years, but with gilts yielding close to 5% they should also be in your sights, starting with five-year gilts (for obvious reasons) and then buying a few longer-dated ones. Also look at corporate fixed interest where there are interesting opportunities.

The majority can be shares, but don't neglect the above. And don't be greedy!


GS
[EDIT: I aim for 3% net net net, actual outcome is 13-14% CAGR over 20+ years.]