Could you retire on £1m

[daveduke67]

Ok here goes. Assuming the bond out grows the withdrawls by 2% pa, in twenty years the original £1000,000 would be worth £1,491,800. That may or may not worth more than it is now in terms of real value but it would be close either way and certainly have avoided the vast majority of any capital erosion, especially when compared with deposit based accounts which never will.

The "average" bond has returned just over 6% pa over the last 20 years. THSP managed fund has averaged 9.7% over the last 20 years (a period more tumultuous than any other in history, including black wednesday, dot com bubble burst, 9/11, Iraq/Afghanistan and the credit crunch), so it would be fair to say that similar returns (if not possibly greater) could be forecast going forward.

A 20 year time period is far more reliable to look at than 5 years as the investment would be for a minimum of 20 years to make best use of the annual 5% allowance and allows for good years with 30% growth and bad years with up to 15% loss.




The question was "can one retire on £1m", not what is the best advice for someone that has £1M in liquid assets mate.

The FSA best advice is to keep 3x months expenditure in very liquid emergency funds to cover unexpected expenses.


A capital investment bond of £1M could, in theory be invested into 200 different funds, and cover a veritable smörgåsbord of risk and investment strategies. Just because it is all ring fenced under the same policy number does not affect that. You could have funds that invest in cash, derivatives, bonds, gilts, equities, property etc (ie all the asset classes) and one would obviously pick the funds to match the investors unique risk profile, goals and aspirations.

My point was that DLBH suggested something that wasn't really the way to maximise potential income - and you came back with something that wouldn't be best advice either. I'm pretty sure you wouldn't advise someone to invest 100% of their capital in one type of bond either with various risk funds within it or with different companies - and I did originally say one typeof investment not a single bond. I am well aware of the fact that you can have multi fund investments.

You said "The question was "can one retire on £1m", not what is the best advice for someone that has £1M in liquid assets mate". I don't see your point with that statement. What are you taking the 'on £1m' to mean? I was assuming that they would be getting their income from a best advice portfolio designed around their circumstaces. Were you saying that there is a bond available that would give £50k (based on 5% p.a. potentially tax free withdrawals) even though in reality you wouldn't actually put eveything into it?

Depending on spending habits someone comfortably retire on DLBH's 3% gross income and another would be dipping into their capital within a few months with your more generous potentially tax free 5%.

I just though you were quick to ridicule his suggestion especially as it wasn't wrong - unlike the 250k a year suggestion - I hope that was just an accidental additional zero rather than a pre LAUTRO/FSA type of quote.



I hope this makes sense as I'm trying to entertain a three year old and make our tea at the same time.

My suggestion is still the best from the thread in the long term. Nothing risky in only having one type of investment, given a good fund spread.

5% with no tax is fantastic and there's no way your capital would be eroded over a 20 year timescale. There would be bad years for sure, but so long as society survives, the good years would outweigh them.

I will ridicule anyone who suggests a deposit based solution for £1,000,000. It would be crazy. Less return and more tax. Not exactly what one would define as best advice.

-- Fri Dec 02, 2011 8:17 pm --

Edit: what's wrong with investing in one type of bond Dave? Nothing in the fsa rulebook that suggests it can't be classed as best advice.

As you have no doubt encountered a few in your time, you will be more than aware of the old dears who insist in keeping their 0.1% savings accounts as they have a book. There are plenty of people about who won't do anything other than deposit accounts or, at a push, National Savings. That's why DLBHs suggestion, whilst not the best thing to do in our eyes -no commission for a start ;-), would be ideal for some people.

I agree that the rules don't say that there's anything wrong with one bond - but it wouldn't allow you to put 100% of capital into one which you'd need to do to get £50k p.a.


Anyway, why are we wasting our time on hypothetical nonsense like this - there's a muffin/barm debate that needs seeing to!

 

[SWP's back]

My point was that DLBH suggested something that wasn't really the way to maximise potential income - and you came back with something that wouldn't be best advice either. I'm pretty sure you wouldn't advise someone to invest 100% of their capital in one type of bond either with various risk funds within it or with different companies - and I did originally say one typeof investment not a single bond. I am well aware of the fact that you can have multi fund investments.

You said "The question was "can one retire on £1m", not what is the best advice for someone that has £1M in liquid assets mate". I don't see your point with that statement. What are you taking the 'on £1m' to mean? I was assuming that they would be getting their income from a best advice portfolio designed around their circumstaces. Were you saying that there is a bond available that would give £50k (based on 5% p.a. potentially tax free withdrawals) even though in reality you wouldn't actually put eveything into it?

Depending on spending habits someone comfortably retire on DLBH's 3% gross income and another would be dipping into their capital within a few months with your more generous potentially tax free 5%.

I just though you were quick to ridicule his suggestion especially as it wasn't wrong - unlike the 250k a year suggestion - I hope that was just an accidental additional zero rather than a pre LAUTRO/FSA type of quote.



I hope this makes sense as I'm trying to entertain a three year old and make our tea at the same time.

My suggestion is still the best from the thread in the long term. Nothing risky in only having one type of investment, given a good fund spread.

5% with no tax is fantastic and there's no way your capital would be eroded over a 20 year timescale. There would be bad years for sure, but so long as society survives, the good years would outweigh them.

I will ridicule anyone who suggests a deposit based solution for £1,000,000. It would be crazy. Less return and more tax. Not exactly what one would define as best advice.

-- Fri Dec 02, 2011 8:17 pm --

Edit: what's wrong with investing in one type of bond Dave? Nothing in the fsa rulebook that suggests it can't be classed as best advice.

As you have no doubt encountered a few in your time, you will be more than aware of the old dears who insist in keeping their 0.1% savings accounts as they have a book. There are plenty of people about who won't do anything other than deposit accounts or, at a push, National Savings. That's why DLBHs suggestion, whilst not the best thing to do in our eyes -no commission for a start ;-), would be ideal for some people.

I agree that the rules don't say that there's anything wrong with one bond - but it wouldn't allow you to put 100% of capital into one which you'd need to do to get £50k p.a.


Anyway, why are we wasting our time on hypothetical nonsense like this - there's a muffin/barm debate that needs seeing to!

It would. You could put 100% of your capital (less 3 months expenses as an emergency fund) into a bond and take no distributions at all. The FSA (who are infinitely picky on these matters) are more than happy for a bond to used for capital growth alone, so long as you can discount the reasons why you didn't use and ISA and unit trusts.

As for the old dears earning their 0.1%, some do. I had a conversation with one yesterday and asked "what would you feel if your investment lost 30% over the next 5 years", she answered that she would be appalled, I was then able to point out that is exactly what will happen (to inflation), if she left her money on deposit.

As for commission, investment bonds are 100% allocation (ie £1m invested means £1m invested), no front loaded charges to worry about (unlike unit trusts and ISA's).

 

[daveduke67]

It would. You could put 100% of your capital (less 3 months expenses as an emergency fund) into a bond and take no distributions at all. The FSA (who are infinitely picky on these matters) are more than happy for a bond to used for capital growth alone, so long as you can discount the reasons why you didn't use and ISA and unit trusts.

As for the old dears earning their 0.1%, some do. I had a conversation with one yesterday and asked "what would you feel if your investment lost 30% over the next 5 years", she answered that she would be appalled, I was then able to point out that is exactly what will happen (to inflation), if she left her money on deposit.

As for commission, investment bonds are 100% allocation (ie £1m invested means £1m invested), no front loaded charges to worry about (unlike unit trusts and ISA's).

But we're talking about income not capital growth aren't we?

For those that don't know about these things you buy units at a price of say £1 and you can sell them back at 95p. So although all of your money is invested, there is a difference between what you pay and what you sell - same as your holiday money. The phrase 100% allocation can be a bit misleading if it isn't explained clearly to an investor. No front loaded charges but you'd still lose a hefty chunk if you encashed it early with the difference in buy/sell price - and that's without penalty charges.

There'd still be a tidy commission in it for the advisor - 3%,4%, even 5%?

That'd be financial advisors 6-1 day.

 

[SWP's back]

It would. You could put 100% of your capital (less 3 months expenses as an emergency fund) into a bond and take no distributions at all. The FSA (who are infinitely picky on these matters) are more than happy for a bond to used for capital growth alone, so long as you can discount the reasons why you didn't use and ISA and unit trusts.

As for the old dears earning their 0.1%, some do. I had a conversation with one yesterday and asked "what would you feel if your investment lost 30% over the next 5 years", she answered that she would be appalled, I was then able to point out that is exactly what will happen (to inflation), if she left her money on deposit.

As for commission, investment bonds are 100% allocation (ie £1m invested means £1m invested), no front loaded charges to worry about (unlike unit trusts and ISA's).

But we're talking about income not capital growth aren't we?

For those that don't know about these things you buy units at a price of say £1 and you can sell them back at 95p. So although all of your money is invested, there is a difference between what you pay and what you sell - same as your holiday money. The phrase 100% allocation can be a bit misleading if it isn't explained clearly to an investor. No front loaded charges but you'd still lose a hefty chunk if you encashed it early with the difference in buy/sell price - and that's without penalty charges.

There'd still be a tidy commission in it for the advisor - 3%,4%, even 5%?

That'd be financial advisors 6-1 day.

You are wrong, 100% allocation on bonds is 100% and is not misleading which is why it is used. There is NO bid/offer spread on a bond. You are thinking about OEIC's/Unit trusts. Please do me a favour of knowing what you are on about mate and don't lie on here mis-representing what I am saying with falsehoods.

Re your first point, yes we are talking about income however you do NOT have to prove to the FSA that the client needs 50k pa. So long as you don't exceed the 5% annual allowance from a bond you are fine. All the SL would need to note was that the client wishes to maximise their tax free (return of capital) distributions from the bond. If a client only wanted £30k or £37k or whatever amount, they can elect to take that amount and make changes at any time. That is why it is classed as best advice by the FSA.

As I say, I'm chartered and know what I am talking about and whilst I may come across as being pedantic, this (subject) is what I do and I am very particular about the advice being correct and complient.

 

[inbetween]

Thing is when you have a million it's quite easy to make another million.

 

[Chev Chelios]

Yes

 

[yayas trusty right foot]

Unless you want to go on a massive spending spree, then i would say you can retire on that amountbof money very easily..

Buy 10 2 bed terrace houses at current prices of around £60000 each..

Total cost £600000

Rental income of around £4500 per month, if all fully let

You still have £400000 to do what you want but have an income of over £50000 per year..

 

[warpig]

Thing is when you have a million it's quite easy to make another million.

i dont get out of bed for anything less than £2 mil.

 

[daveduke67]

It would. You could put 100% of your capital (less 3 months expenses as an emergency fund) into a bond and take no distributions at all. The FSA (who are infinitely picky on these matters) are more than happy for a bond to used for capital growth alone, so long as you can discount the reasons why you didn't use and ISA and unit trusts.

As for the old dears earning their 0.1%, some do. I had a conversation with one yesterday and asked "what would you feel if your investment lost 30% over the next 5 years", she answered that she would be appalled, I was then able to point out that is exactly what will happen (to inflation), if she left her money on deposit.

As for commission, investment bonds are 100% allocation (ie £1m invested means £1m invested), no front loaded charges to worry about (unlike unit trusts and ISA's).

But we're talking about income not capital growth aren't we?

For those that don't know about these things you buy units at a price of say £1 and you can sell them back at 95p. So although all of your money is invested, there is a difference between what you pay and what you sell - same as your holiday money. The phrase 100% allocation can be a bit misleading if it isn't explained clearly to an investor. No front loaded charges but you'd still lose a hefty chunk if you encashed it early with the difference in buy/sell price - and that's without penalty charges.

There'd still be a tidy commission in it for the advisor - 3%,4%, even 5%?

That'd be financial advisors 6-1 day.

You are wrong, 100% allocation on bonds is 100% and is not misleading which is why it is used. There is NO bid/offer spread on a bond. You are thinking about OEIC's/Unit trusts. Please do me a favour of knowing what you are on about mate and don't lie on here mis-representing what I am saying with falsehoods.

Re your first point, yes we are talking about income however you do NOT have to prove to the FSA that the client needs 50k pa. So long as you don't exceed the 5% annual allowance from a bond you are fine. All the SL would need to note was that the client wishes to maximise their tax free (return of capital) distributions from the bond. If a client only wanted £30k or £37k or whatever amount, they can elect to take that amount and make changes at any time. That is why it is classed as best advice by the FSA.

As I say, I'm chartered and know what I am talking about and whilst I may come across as being pedantic, this (subject) is what I do and I am very particular about the advice being correct and complient.

That'll teach me to compose far too long replies, cut parts out and post unchecked replies inbetween separating fighting kids, fighting dogs, postmen calling with parcels and eating bacon sandwiches! Despite that post suggesting otherwise I do know the difference and consequently, how silly the allocation part was.

No up front charges doesn't mean that there aren't any though does it- otherwise how would the advisor get their 3,4, or 5% commission and why would the provider bother if there was nothing in it for them? Unit trusts/OEICs have the up front charges but don't have withdrawal penalties - so there's pros and cons with each.

This thread started off with a question 'can you retire on a million'
You ridiculed DLBHs 3% suggestion calling it some sort of shit, and advised that an income of £50k - 5% of the total capital was possible.

His suggestion is short term, risk free capital safe with a low return that wouldn't attract any fees or commission, yours is medium to long term, early withdrawals of capital attract a penalty, it has an element of risk with a potentially tax free fixed return but with the potential of capital erosion if returns are lower than withdrawals and no doubt a significant commission for the advisor.

No such thing as the correct answer but DLBH's didn't justify being called shit. A no risk, capital safe short term investor could say the same about an low/medium risk medium term investment.

 

[Ardwick AFC]

I have 30+ years left to work. I will earn 1.5 million in that time. Could I retire on 1 million?

Probably, because I would invest it in property and rent them out for extra income and sell them when I need some cash.