Investment strategy for 78 year old

[Jopo1]

Hi everyone.
Mum inherited dad's S&S ISA and therefore is given additional permitted subscription (APS) to an ISA to the value of dad's isa, which is around £26k

In order to transfer it to an ISA in her name, it needs to be in cash, so this is an ideal opportunity to decide what to do with the money.

She's 78 years old. Is it worth reinvesting in the stock market or should we hold it as cash?

Other info:

She has £35k in cash, mostly in an isa
She has £12.5k in her own S&S ISA, it was initially invested as a HYP but last year only got around 4% return
Her Income is approx £14500pa
She spends around £20-£25k pa
In the near future, she needs to do some work on the house, probably around £10k
I don't think she'll be long lived - I'll be happy and surprised if she's still with us in 5-6 years time

It looks like we can get a 1Y fixed ISA at 5% at the moment - although the rate drops with longer term fixes so that's unlikely to be sustained.

WWYD?

Thanks

Jopo

[EthicsGradient]

So that'll be about £63k in all, after paying for the work on the house. If she needs say £8k/yr from the cash (and assuming the interest matches inflation), I'd say it's probably better to put all (or nearly all) of the APS in a cash ISA, not shares.

[Urbandreamer]

I was going to say that it was impossible to provide a recommendation as we know nothing about your mum's attitudes.

Then I realized that we do.

Currently she has some equity investment, but 2/3eds is in cash.
Why not simply keep the same ratio?
You may have to do some work, as it's uncommon, but she can transfer the inherited ISA into both a S&S and a cash ISA.

I'm not a fan of the attitude that YOU, rather than I reach 60/78. So YOU have lost interest in equities and need to be fed. Fine if you have lost/no interest in equities, but that should be up to you rather than other peoples consensus.

PS, while what I suggest is quite legal, it would also be possibly to put £18k in a cash ISA in March and add £8k to her existing ISA in April ignoring the aspect that the money has ISA status.

[Gerry557]

My initial thoughts were to keep it in cash but...

Rates are expected to drop, possibly three times this year. So whist you might get a decent 12m rate it's unlikely to be repeated. I assume she's a tax payer so would need to look into the savings tax allowance. I think she might get the extra £5k.

The other option is bonds or bond like equities that offer a higher dividend yield. NG., Trig, UKW, SMIF etc These might not blow the roof off but could provide a decent income and more likely to rise as rates drop. These could offer 5.5% - 9% albeit with a fluctuating capital.

It might be best to discuss it with her on how she feels. Additionally she should get another ISA allowance in the new tax year anyway so might not need the APS.

I would also ask if she has a will and who the executor is. They might find some of this useful.

[DrFfybes]

A whole host of options open up at that age...

I'd look at it afresh - after the house spend she has circa £60k and needs to generate circa £6-9k if I read it right. That level of return is not going to be achieved through natural income. Is the income requirement steady or staggered - is there a requirement for smooth income?

A level annuity would generate about 10%, or about 7% return from an increasing annuity. Obviously I don't know her health history, which would make a difference. This is the safe option, you know what you're getting and that it will last.

The Cash option is the next one, you also know how long it will last, because if it returns more than inflation you're doing well these days, so you can pretty much predict when it will run out, and possibly taper things if required.

Alternatively we have a 'pot' that is in a Global Fund (actually a 70:30 Equity:Bond one) and is automatically sold down each month to provide a fixed amount into the bank. The aim was to deplete it over the 16 years between retirement and SP, although it seems to have been more resilient than predicted (but there's time for that to change). I think Vanguard can do it, but otherwise it could be done pretty simply manually. Would I personally do that with all my assets at age 78? Depends on my health.

FWIW mum was 78 when dad died. I set her a pseudo HYP using income funds which gave her 4.5-5% for her last 12 years, and overall had another 40% or so capital growth over that period. However this was adequate for her needs, and there was a small cash buffer.

Paul

[Jopo1]

Currently she has some equity investment, but 2/3eds is in cash.
Why not simply keep the same ratio?

Because what she has come about purely by accident, not by design. So now is the time to design the strategy. 2/3 in cash might be a good idea, but to be honest I'm not sure!

You may have to do some work, as it's uncommon, but she can transfer the inherited ISA into both a S&S and a cash ISA.

Yes, we can do that quite easily.

I'm not a fan of the attitude that YOU, rather than I reach 60/78. So YOU have lost interest in equities and need to be fed. Fine if you have lost/no interest in equities, but that should be up to you rather than other peoples consensus.

I don't understand this, sorry.

PS, while what I suggest is quite legal, it would also be possibly to put £18k in a cash ISA in March and add £8k to her existing ISA in April ignoring the aspect that the money has ISA status.

Yes I thought about that. But she may have another £10k in cash coming (or she may not, long story) and that will need to go in an ISA. Of her existing cash, I think £21k is in an ISA and the remaining £14k isn't but will from 6th April. So that's next year's ISA allowance already used.

[Jopo1]

Gerry557, thanks for your reply

Rates are expected to drop, possibly three times this year. So whist you might get a decent 12m rate it's unlikely to be repeated. I assume she's a tax payer so would need to look into the savings tax allowance. I think she might get the extra £5k.

Hmm I hadn't thought about the starting savings allowance. Part of her monthly income is actually attendance allowance and so is unlikely to count as income for that savings rate. So there might be some added tax benefit there.

The other option is bonds or bond like equities that offer a higher dividend yield. NG., Trig, UKW, SMIF etc These might not blow the roof off but could provide a decent income and more likely to rise as rates drop. These could offer 5.5% - 9% albeit with a fluctuating capital.

It's the risk of the fluctuating capital that bothers me most, but maybe it shouldn't. I've wanted to protect her capital so that she can start spending it down as she gets older. I don't want to be in a position where we HAVE to sell shares NOW for income, and be in a large dip in value. Possibly with that a good dividend yield the capital is much less important, and someone else has suggested an annuity with a guaranteed income. So I perhaps need to change my mindset about the risk.

It might be best to discuss it with her on how she feels. Additionally she should get another ISA allowance in the new tax year anyway so might not need the APS.

She will agree with the last person she spoke to. Her own ISA allowance will be taken up with her own cash that's currently outside an isa and potentially a new £10k lump sum that might come in April.

I would also ask if she has a will and who the executor is. They might find some of this useful.

She is in the process of rewriting her will as it is no longer relevant now my dad has gone. I am the executor with my brothers, but let's assume I will do everything, as that's what's happened with dad's will.
Thanks

Jopo

[Urbandreamer]

I'm not a fan of the attitude that YOU, rather than I reach 60/78. So YOU have lost interest in equities and need to be fed. Fine if you have lost/no interest in equities, but that should be up to you rather than other peoples consensus.

I don't understand this, sorry.

I obviously worded it very badly.

Many seem keen to dictate what those later in life should do. Despite well known examples who continue to have an active interest in, for example, choosing and managing investments. Charlie Munger (active until he died at 99), Lord Lee (still active and encouraging others at 81) etc.
It's often claimed "you no longer need to put the effort in", ignoring the fact that for some it's an interest.

However you seem to indicate that the existing portfolio is accidental, rather than planned. So possibly your mother has little interest.

[Jopo1]

I'd look at it afresh - after the house spend she has circa £60k and needs to generate circa £6-9k if I read it right. That level of return is not going to be achieved through natural income. Is the income requirement steady or staggered - is there a requirement for smooth income?

She has regular expenditure and then larger one-off costs - she has £1000pm income and uses cash savings for the one-offs

A level annuity would generate about 10%, or about 7% return from an increasing annuity. Obviously I don't know her health history, which would make a difference. This is the safe option, you know what you're getting and that it will last.

This is a great idea. Putting £36k in an annuity for 5 years with no lump sum at the end would give her an annual income of £7600, which is good! Obvs that is the equivalent of saving it (cash or S&S) and using the income and a portion of the capital. The point is, we don't have to plan it or do it, someone else does it for us.

Thanks for your insights

Jopo

[Jopo1]

Many seem keen to dictate what those later in life should do. Despite well known examples who continue to have an active interest in, for example, choosing and managing investments. Charlie Munger (active until he died at 99), Lord Lee (still active and encouraging others at 81) etc.
It's often claimed "you no longer need to put the effort in", ignoring the fact that for some it's an interest.

However you seem to indicate that the existing portfolio is accidental, rather than planned. So possibly your mother has little interest.

Don't worry, I'm not riding rough-shod over her wishes or requirements.

I actually have her power of attorney so I can help her with every day financial things like dealing with the bank, pensions, tax, bills, budgeting etc because she struggles with it. I've been managing her finances since dad died because dad did all of it, and mum knows she doesn't understand much of it anyway. She honestly does not have a clue what she should do. I wish she would do it all herself because I'd really prefer not to spend a large proportion of my limited spare doing it!

Jopo

[Dicky99]

When my dad passed away in 2017 he left mum with a random jumble of equity and bond funds amounting to £160k all inside an ISA.
For simplicity I sold the lot and split the funds equally between Vanguard 60/40 and HSBC Global Strategy Balanced. I explained to her that it won't shoot the lights out when the market is rising but shouldn't fall so much in turbulent times.
She draws ad hoc chunks down when she needs to typically about £8k a year and still has £137k remaining so it's fulfilled its brief considering the last couple of years we've experienced.

[Hariseldon58]

FWIW I’d consider Gilts , perhaps some individual bonds or the iShares 1-5 yr ETF (IGLS.L) plus a smaller allocation to a Global Equity Tracker.

My father had poor health at 78 but actually lived to 99, allow for the happy chance that lifespan is longer than you think and as previously mentioned the annuity is the simplest, safest option.

[tjh290633]

If the main concern is income, then she should be able to get 5% from ITs with the prospect of growth in both capital and income. The problem is that you can only guess at her life expectancy. For that reason I think the annuity idea is a non-runner.

Fixed interest will give a fixed income with no prospect of increase with inflation, either of income or capital. To get that, yields are minimal.

Cash is at the mercy of interest rates and offers no protection from inflation.

TJH

[DrFfybes]

If the main concern is income, then she should be able to get 5% from ITs with the prospect of growth in both capital and income. The problem is that you can only guess at her life expectancy. For that reason I think the annuity idea is a non-runner.

TJH

But 5% is not what she needs, it is about half of it, which means capital depletion. I haven't looked recently for igh yield ITs but last time I looked it seemed disproportionately at the expense of growth, although perhaps not an issue for someone of that age. There is a thread somewhere on "How high is too igh" or similar, but I can't find it as the search function rejects the words as being too common!

An annuity is guaranteed for the rest of her life, be it 2 years or 20. However income from it will (I assume) be taxable - presumably if you use ISA money to buy an annuity then it becomes unsheltered. A partial annuity to meet basics means more risk can potentially be taken with the other assets.

The basic issue is there is not enough asset to generate the required income. How to manage that depends on many personal factors (health, home owner, family support, etc).

Paul

[tjh290633]

If the main concern is income, then she should be able to get 5% from ITs with the prospect of growth in both capital and income. The problem is that you can only guess at her life expectancy. For that reason I think the annuity idea is a non-runner.

TJH

But 5% is not what she needs, it is about half of it, which means capital depletion. I haven't looked recently for igh yield ITs but last time I looked it seemed disproportionately at the expense of growth, although perhaps not an issue for someone of that age. There is a thread somewhere on "How high is too igh" or similar, but I can't find it as the search function rejects the words as being too common!

An annuity is guaranteed for the rest of her life, be it 2 years or 20. However income from it will (I assume) be taxable - presumably if you use ISA money to buy an annuity then it becomes unsheltered. A partial annuity to meet basics means more risk can potentially be taken with the other assets.

The basic issue is there is not enough asset to generate the required income. How to manage that depends on many personal factors (health, home owner, family support, etc).

Paul

The problem is how long she lives, which nobody can predict. Once you start eating into capital to provide income, then you are on a slippery slope. The longer term concern will be possible care costs, which hopefully sale of the property would cover for a few years. I just wonder how much of her expenditure is optional? House repairs can be expensive, as I know from my own experience.

TJH

[Jopo1]

Thanks for all the input. Obviously lots of ideas and none stand out as better than than another, all carry risks, and much is dependent on how long she lives which of course no-one can predict! We actually all thought mum would go first, as dad was strong as an ox and mum is disabled and has various ailments. So you never know what will happen!

My intention for her is to dip into the capital for income. I would far rather she spends her money on herself than have too much left when she dies.

Over time she will spend less as she becomes less mobile and her health will deteriorate so she won't be out and about nearly as often to rotary club, civic society, book clubs, meals out, having her hair and nails done.....

Yes the house will cover some costs of care, and if she can stay out of a care home until Oct 2025 (very likely) then £100k of her assets are protected from care home fees (she only owns half the house anyway).

I think a combination of bonds, cash, high yield investments will likely give us a good spread of risk.

Thanks again

Jopo

[1nvest]

Thanks for all the input. Obviously lots of ideas and none stand out as better than than another, all carry risks, and much is dependent on how long she lives which of course no-one can predict! We actually all thought mum would go first, as dad was strong as an ox and mum is disabled and has various ailments. So you never know what will happen!

My intention for her is to dip into the capital for income. I would far rather she spends her money on herself than have too much left when she dies.

Over time she will spend less as she becomes less mobile and her health will deteriorate so she won't be out and about nearly as often to rotary club, civic society, book clubs, meals out, having her hair and nails done.....

Yes the house will cover some costs of care, and if she can stay out of a care home until Oct 2025 (very likely) then £100k of her assets are protected from care home fees (she only owns half the house anyway).

I think a combination of bonds, cash, high yield investments will likely give us a good spread of risk.

Thanks again

Jopo

Don't bank on not having to pay for care costs. When LA funded the terms/conditions can be dreadful, unfit even for a dog, and pressures are only making that worse/more common, as are pressures set to rise (increasing numbers). When the crunch comes many will opt instead to self-fund alternatives. Of the order £60,000/year lower end, casual care, upwards. For more intense care that can easily double or more. Once exhausted one has to consider whether family members might take out debts to continue with the same level/standard of care or fall back on what/where the LA dictates.

Ball park guide figures, £10K pension + £5K care allowance out of £60K costs = £45K/year. Average period in care = 4 years, so £180K average. But obviously being a average and some may be in care just for weeks/months, others maybe 10+ years. My mother whose in (dementia) care is 93, but physically fit/well enough to maybe get to be 100+

[scrumpyjack]

In these circumstances there is much to be said for an annuity and bear in mind that for a purchased annuity (not bought with a Sipp), much of each payment will not be taxable as it will be deemed to be a repayment of capital.

[DrFfybes]

..... for a purchased annuity (not bought with a Sipp), much of each payment will not be taxable as it will be deemed to be a repayment of capital.

Really? Wow - one lives and learns. Having DB Pensions we have our basics covered so had not really looked into them, however as MrsF's is much larger than mine and I'd only get a third if she went first, this is something I might need to consider in the future.

Thanks

Paul

[scrumpyjack]

This from M & G explains how it all works. For a 78 yr old the capital (non taxable) element of each annuity payment will be quite high.

https://www.mandg.com/wealth/adviser-se ... -annuities