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Lump sum

Discussion in 'Retirement' started by gliss, Apr 22, 2019.

  1. gliss

    gliss New commenter

    I am taking early retirement at the end of this academic year, 59. What do you suggest to do with lump sum. Mine is not huge and interest rates are so low I'm not sure.
  2. HelenREMfan

    HelenREMfan Star commenter

    Depending on how large your lump sum is..... I fly in the face of Martin Lewis' advice and have done well with premium bonds. The trick is though to buy as large a bunch as possible. I originally put in £21K then followed it up with £29K so to have the total possible amount. I have done well. Wins of £5K, £1K 2 x £100 and innumerable £25. It has certainly beaten high st bank interest rates that's for sure. I have also put some into one of their bonds. My only regret is that I went paperless.....as I so miss the arrival of the Glasgow postmarked winner envelopes at the start of a new month and that few minutes on opening hoping it's a "biggy"!
    Startedin82, Prim and Alldone like this.
  3. gliss

    gliss New commenter

    Wow, was talking about this to hubby the other day, definitely food for thought. Thank you.
    Startedin82 likes this.
  4. Alldone

    Alldone Senior commenter

    I agree about Premium bonds. I put the maximum amount in bonds for myself and my wife. We win every month and have done so for the last two years we have had them in. Average annual % winnings is more than 4%, which beats pretty much any other savings account.
    Have you tried the Premium bond app? It lets you know if you have won on the day the bonds are drawn each month. You even get nice animated graphics of bubbly etc.
    HelenREMfan likes this.
  5. lindenlea

    lindenlea Star commenter

    We've done OK with Ernie but not as well as previous posters. We have done well with investments through HSBC equity ISAs. There are products that give you an income which might be worth looking at. The best thing we did was help son2 buy a flat.
  6. PeterQuint

    PeterQuint Lead commenter

    Do you have kids with mortgages?

    With an offset mortgage you can stick it in a bank account linked to their mortgage (don’t worry, they can’t touch your money), and offset your amount against what they owe, and save interest.

    Example - they owe £150,000 and you put £50,000 in the account: they only pay interest on £100,000.

    I would imagine the saving in interest is a better return than most things you could put the money into.
  7. HelenREMfan

    HelenREMfan Star commenter

    I did that kind of mortgage when I had to take out £60K worth after my divorce. I have to say it worked well for me. I did up how much I had to pay though to pay it off as soon as I could. I don't know if they still offer this kind of mortgage though.
  8. eljefeb90

    eljefeb90 Senior commenter

    Spend it! You aren't going to live forever. Travel while you still can. B*gger saving! Interest rates are ridiculously low.
    Alternatively, spend it on home improvements. You will get the benefit of improved living conditions and your home will be worth more when they wheel you off to the care home.
  9. Prim

    Prim Occasional commenter

    Spend it, enjoy yourself, buy a classic car that will increase in value while you have FUN.
    Startedin82 likes this.
  10. Yoda-

    Yoda- Lead commenter

    Have an emergency fund in an easy access account. You won't have as large an income to depend on to absorb emergencies any more! Three times your current monthly net pay is the normal amount recommend. Obviously the best paying easy access rate is what you want. Be careful that the account is truly easy access, some only allow access once a year!

    If you have any debts then consider paying some of them. Probably in order of how big an interest rate they charge. You still want an emergency fund...

    The balance of anything left you might want to consider high interest cash ISAs or savings accounts. Sometimes normal accounts pay better than ISAs, which is best for you may depend on your tax position. Equities may offer a better rate of return in the long term thought obviously you have an increased risk....

    The above is what I did myself, apart from the paying down of any debt as I had already done that. I continue to drip feed a Share ISA started before retirement....

    Or get a Lamborghini...

    Startedin82 and Sundaytrekker like this.
  11. Startedin82

    Startedin82 Established commenter

    I have just retired (at Easter - the schools in my neck of the woods go back tomorrow and I'm feeling very pleased with myself - mind you my wife is back to work tomorrow so I'm trying not to bask in it too much) and I've decided to split my lump sum 50/50. Half to invest and half to have fun with - travel etc. Don't make the mistake of my mother in law who wouldn't spend and has now given her (considerable) money to the owner of a care home!
    Dorsetdreams, eljefeb90 and Jamvic like this.
  12. gliss

    gliss New commenter

    Hehehe, this did make me larf.... New bathroom going in!
    Jamvic and eljefeb90 like this.
  13. soosoodoris

    soosoodoris New commenter

    I retire in July after 36 years of teaching on a final salary pension.
    Would welcome advice on whether to take larger annual salary pension or larger lump sum.
    Any suggestions from your experience .
  14. FrankWolley

    FrankWolley Star commenter

    As I would expect most of us to say, it really depends on your personal circumstances and what works for me (say) might not work for you...

    But, to help, here's what I did & why some 6 years ago (and I don't regret it a bit):

    • Your lump sum is untaxed, but your pension is taxed; (& who knows if a future government might not start taxing lumps sums?)
    • if you die, there is a survivor's pension, but if you've already taken the max. lump sum, they don't ask for it back!
    • The lump sum can be used to: pay off a mortgage; pay off any debts; fund 'luxuries' (e.g. a new car); pay for a 'once in a lifetime holiday' etc
    • My experience is that one can live happily on a lower pension than one did a salary, esp. if mortgage & debt free;
    • By the time one will have started to lose out if one takes a maximum lump sum as compared to taking a maximum pension, the state pension will have kicked in...
    So, you won't be surprised to hear, I took the maximum lump sum and, nearly 6 years on, it still works for me...

    BUT remember, you need to work out what is best for you, not listen to me or anyone else uncritically.

    Hope that helps.
    Jamvic and richest1 like this.
  15. Sundaytrekker

    Sundaytrekker Star commenter

    As Frank says, it depends on your circumstances and priorities. For myself, with mortgage already paid off, I wanted the security of the maximum income possible inflation proofed for as long as we receive it. So I didn’t convert any extra income into lump sum and I don’t mind that I pay tax on it.
    catmother and eljefeb90 like this.
  16. HolyMahogany

    HolyMahogany Senior commenter

    For me the key issue has been funding the gap between retirement from teaching and receiving my state pension. Since I went early I am looking at a gap of nearly 10 years between the two, so opted for the max income and standard lump sum. I also have a part time job that makes up the difference, and payed off the mortgage which also makes a big difference.
    When my wife and I eventually have both our state and both our teacher pensions - about 12 years from now, we will have a pretty good income. This is based on current rates for state pension, so remember things can change over that period of time.
    Over the next few weeks you can do the maths and consider what you need to live on and what you want to spend.
    Enjoy your retirement.
  17. eljefeb90

    eljefeb90 Senior commenter

    I did the same as @Sundaytrekker . Maximum pension. In the end, the human instinct tends towards optimism and I hope to live another 30 years. Even though I pay tax on some of it, the pension is a guaranteed inflation-proof income I can rely on for the rest of my life. The minimum lump sum was quite enough to pay off the mortgage , buy a car and get substantial work done on the house, with plenty left over. I have surprised myself with how much I have spent in three years and I always thought I was ' fiscally conservative '. The lump sum can burn a hole in your pocket. An additional issue for me is that my wife will only have a state pension to live on, so, if I pop my clogs , she will get 50% of my maximum pension, which will make all the difference.
    catmother, jonnymarr and Dorsetdreams like this.
  18. emerald52

    emerald52 Star commenter

    I paid off our mortgage, bought a new car and gave my daughter money to buy some of her flat. She offered to pay it back but I said it was an early inheritance. I also had a holiday in September just after school had gone back. The rest went in an ISA.
    MrSaturday and eljefeb90 like this.
  19. grumbleweed

    grumbleweed Star commenter

    I'm in the same quandary although it's a low amount as I've worked many years part time. I'm also going several years early ( no final decision about when yet) but am thinking of taking maximum lump sum to enjoy, help the grandkids etc. Mr GW has a small pension already and we can live quite cheaply as we're not extravagant.

    I've not had such good luck on premium bonds, just about 1% return, and we've had the maximum so it is a risk.
  20. jonnymarr

    jonnymarr Occasional commenter

    "Each to their own" seems apt.
    I'm not quite there yet, but my circumstances make it highly likely that I will also want to maximise my regular monthly income. If I had any extra cash in the bank 'up front' it would probably just sit there or be invested in something relatively low-risk which might mean it just about held its real-terms value.
    On the other hand, the inflation-proofing of the monthly pay, at least in my book, is not to be sniffed at, even if it is ( over 12.5k ) taxable. Inflation is relatively low right now, but might not always be - and I like the security this brings. It would cost an arm and a leg to get a similar deal on the open pension market. And yes, I too am an optimist and plan/hope to stay healthy and fit so the b*gg*rs have to pay out for as many decades as possible & if I do go first my wife gets 50% of this higher amount. As eljefeb90 says, all these kind of things go into the equation.

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