The investors who can't wait for the storm to blow over
If you're nearing retirement, it's no comfort that returns on shares and rates on savings accounts will recover one day. Kate Hughes looks at the options for those who need to maximise their money now
Sunday 11 January 2009
We've been told not to panic about tumbling stock markets – to sit tight, to play the waiting game. With savings rates trivial – and expected to get worse after Thursday's base rate cut from 2 to 1.5 per cent – the advice again is usually to hang in there.
But what if you don't have time to wait? Maximising your retirement income if you only have a few working and investment years left can be an uphill struggle in times like these, because you need your money to work hard in the short to medium term.
Until recently, the assumption would have been that your everyday savings were secure. There have been horror stories, like the collapse of the Icelandic banks, but remember that money held in any bank trading in the UK under the regulation of the Financial Services Authority is protected. In the event of a banking failure, up to £50,000 of an individual's savings are guaranteed through the Financial Services Compensation Scheme (FSCS). If you have more than £50,000 in savings and investments with one bank or building society, consider distributing it among a number of them so you are fully protected. Be aware, though, that if different banks are part of the same financial group – Halifax and Bank of Scotland, say – then that £50,000 cap may still apply.
With all this in mind, you can pursue the best deals for your circumstances – particularly the degree of risk you are prepared to take for your rewards, and how long you plan to keep your money invested.
"In the current climate, cash is king," says Kevin Mountford of price-comparison site Moneysupermarket.com. "But maximising it is another question. You can still get good deals against the Bank of England base rate but really meaningful ones are difficult. Be proactive. Keep an eye on the rates on your savings, especially headline interest offers on instant access accounts as these can drop dramatically overnight, and move your money around where necessary."
For short-term or flexible savings, high-street instant access rates certainly aren't anything special, but if that is what you need then ING Direct currently offers a very reasonable 5 per cent. For the security of a fixed rate of interest and the guarantee of a cash bond, HiSAVE offers a one-year deal of 4.65 per cent for deposits of £1,000 or more.
Tory leader David Cameron recently proposed the abolition of income tax on all savings for basic-rate payers. But in the meantime, you don't want whatever half-decent savings rate you can muster to be further eroded by tax, says Alex Pegley of independent financial adviser (IFA) Calculis. "The first thing anyone should do with their cash, regardless of their age, is use their individual savings account allowance. "Given that they are tax-free and some of the interest rates are fixed, ISAs are the obvious first stop."
Nationwide's two-year fixed-rate ISA offers 4 per cent a year in interest – the equivalent of a taxable rate of 4.8 per cent for a basic-rate taxpayer. In return for that security, though, you are locked into the two-year term.
"Those looking to maximise the value of the cash they save between now and retirement, without exposing it to any significant risk, should look carefully at National Savings & Investments (NS&I) index-linked savings certificates," adds Mr Pegley. "These offer the equivalent interest rate to the retail prices index (RPI) plus a fixed percentage over a specific period. Bear in mind, though, that inflation is expected to drop this year, so your interest rate will fall, at least in the short term."
NS&I has two index-linked savings certificates for lump-sum investments of £100 or more: a three- and a five- year product that both offer RPI (currently 3 per cent) plus 1 per cent.
For those approaching retirement and looking to draw a steady income stream from their investment portfolio, asset allocation is vital, says Darius McDermott of IFA Chelsea Financial Services. "A standard allocation for a cautious investor in this age group is usually 50 per cent bonds, 20 per cent UK equities, 5 per cent international equities, 5 per cent property funds and 20 per cent in cash.
"They should take a defensive position on equities, continuing to ease their way out of this asset class This may be hard to swallow for investors who have lost in the recent market volatility, but it will help reduce risk in the portfolio," he says.
As you reduce your equities, your exposure to corporate and government bonds should increase, to help safeguard your portfolio. Corporate bonds are the investment flavour of the month thanks to their eye-catching returns in a low-interest-rate world. The Henderson Strategic Bond, for example, is not untypical with its current pay rate of 8.8 per cent a year.
But a big influence on your retirement income is what you do with your pension pot at retirement.
If you're about to stop work, your pension won't be going as far as it once did because of falling annuity rates. Shopping around for the best deal is crucial as rates can vary by as much as 25 per cent, which will make a big difference to your monthly income. If you are due to retire in the coming 12 months, buying your annuity now could secure you a better rate.
Should a higher monthly income be your priority in retirement, then experts advise that you forgo taking part of your pension fund as a lump sum. Under Revenue & Customs rules, you are allowed to draw up to a quarter of your personal pension as cash tax-free. But for people with larger pension pots and no immediate need for an income – they may continue working part-time, for instance – then the option exists to keep their pot invested and delay taking any benefits until the age of 75.
- 1 Toddler throws a tantrum at the White House – in front of Barack Obama
- 2 Irish people are travelling home from all over the world so they can vote to legalise gay marriage
- 3 Picture of couple posing with beached dolphin 'that later died' causes outrage
- 4 16-year-old girl beaten and burned alive by lynch mob in Rio Bravo, Guatemala
- 5 Witch doctor arrested after forcing newborn baby to walk in Indian village
As a white man, I'm surprised more women aren't tweeting the hashtag #KillAllWhiteMen
Scotland may have to leave the EU even if it votes to stay in, David Cameron confirms
Report finds that Britain's wages are the most unequal in Europe
The day that Britain resigned as a global power
Almost a third of school pupils believe 'Muslims are taking over our country', study claims
Gay marriage 'Bert and Ernie' cake bakery found guilty of discrimination in Northern Ireland
iJobs Money & Business
£40-50K: Guru Careers: We are seeking an experienced Software / C# Developer w...
£45,000 - £55,000: Neil Pavier: Are you looking for your next opportunity for ...
£45,000 - £55,000: Sheridan Maine: Are you a newly qualified ACA/ACCA/ACMA qua...
£50,000 - £60,000: Laura Norton: Are you looking for an opportunity within a w...
Day In a Page
On the market for the first time in more than 50 years, this six-bedroom home is a project with vast potential - spread over three floors of living space.
This five-bedroom home comes with a range of outbuildings including a large barn which could be converted into a self-contained granny-flat or rental.
Surrounded by rolling countryside, this four-bedroom barn conversion comes with a self-contained, one-bedroom annexe that could serve as an office or a holiday let.
Located near Harrogate town centre, this five-bedroom Victorian terrace is arranged over three storeys while a current study serves as an optional sixth bedroom.
A ground-floor flat in a country house, located a mile from Sway; this two-bedroom home would make an ideal weekend retreat on the edge of the New Forest.
On a popular residential lane in Caterham on the Hill, this four-bedroom family home offers a secluded garden and a convenient location for local schools and public transport.
Just a short walk from Westerham green, this three-bedroom cottage has a light kitchen with exposed brickwork and double doors that lead to a south-facing garden.
In a prime spot opposite the River Thames, this one-bedroom flat has an 18sq ft reception room with glass doors that open out to a private terrace.
Set in the hills above Llanwrda Village, west Wales, this 18th-century three-bedroom farmhouse has holiday-let potential from a separate barn conversion and annexe.
This charming end-of-terrace townhouse is arranged over three floors, with two double bedrooms and a private courtyard garden located at the rear of the property.
This four-bedroom Edwardian home offers a combination of original features and contemporary design after a renovation by the current owners.
Located in the University area, this semi-detached five-bedroom home is arranged over three floors - there's even a rear garden and off-road parking too.
Only a few minutes' drive from the charming town of Marlow, this two-bedroom home sits on the private riverside estate of Harleyford.
This detached four-bedroom home in Middleyard is arranged over two floors, with features that include a wood-burning stove and bespoke oak staircase.
In a row of eight detached Georgian residences, this five-bedroom home offers views of The Sound, Mount Edgcumbe and Cornwall from its impressive veranda and full-length balcony.
If you love cooking for friends this two-bedroom flat - complete with views of the iconic Battersea Power Station and an open-plan kitchen/dining area - will go down a treat.
Located above Grasmere village, this five-bedroom home is arranged over three floors and offers countryside views across Grasmere Lake towards Silver Howe.
Surrounded by the Western fells, this five-bedroom Georgian home retains many original features including panel-plastered ceilings, sash windows and fireplaces.
This six-bedroom home is set amongst three acres of grounds. Currently a large family home, Clift Hill has potential to make a B&B, subject to change of use permissions.
A former period coach house, Glebe Farm Stable is now a three-bedroom cottage with a double car barn, office, kennels and an outbuilding that's currently used as a gym.
Set sail for this four-bedroom farmhouse in Cowes. With five acres of land and an indoor pool, this home oozes character. There is even potential to let a one-bedroom annexe.
Surrounded by woodland, this five-bedroom manor house has plenty of outdoor storage space in the form of three converted loose boxes, two smaller outhouses and a woodstore.
This four-bedroom detached home comes with a double carport, useful workshop, garden and two walkways that offer views of the adjacent countryside.
With space for an equestrian business, a greenhouse for growing your own veg, a wine store and a gym; this five-bedroom home has all the ingredients for a country retreat.
This four-bedroom home has exposed brick chimneys and a vaulted ceiling in a breakfast room that's ideal for summer entertaining - the doors open to the patio and garden.
The decked roof terrace of this two-bedroom flat is perfect for summer drinks while large windows and ample storage space make for a light and spacious interior.
Surrounded by approximately 15 acres of grounds, this six-bedroom grade II-listed home has been extensively refurbished yet retains many period features.
This four-bedroom home comes with a two-bedroom cottage and commercial office, with planning to extend, in a stunning courtyard setting.
In a pretty Norfolk village, this four-bedroom family home is surrounded by landscaped gardens, with even a self-contained annex for guests.
A few miles from the seaside at Perranporth, this four-bedroom farmhouse sits amongst nine acres of idyllic grounds - including a lake and two barns used as holiday lets.
This five-bedroom home is arranged over three floors of a converted Victorian hospital, offering spectacular views of the Pentland Hills - only three miles from the city centre.
This four-bedroom detached home comes with grounds that span to approximately 2.5 acres, as well as two large patio areas and a double garage.
This four-bedroom cottage is a Grade II-listed town house, well-located for the thriving market town of Nailsworth.
A four-bedroom apartment on the ground floor of a stunning period property in North Yorkshire, with two kitchens and a large south-west facing garden.
This high-spec two-bedroom home is part of a smart collection of new flats at Beaufort Park and has a large decked balcony that's perfect for summer drinks.
Capitalise on the fabulous views of Trevone Bay by taking two homes and creating one spacious boutique B&B. Just a cliff-top walk from Padstow.
Overlooking a golf course, this six-bedroom Edwardian detached home spans four storeys and retains many period features including the original, operational servants' bells...
On the edge of the city, this six-bedroom home comes with an outdoor swimming pool and a large garage block that has annexe potential.
In a Grade II-listed manor just outside of Bath, this three-bedroom home is arranged on two floors with a skylight in a vaulted roof line.
Open the living room's bi-fold wooden doors to reveal a retro-style kitchen, and a conservatory leading to a paved garden at this three-bedroom home.
A Grade II-listed, four-bedroom home, in a charming Somerset village, with a two-storey studio that could be converted into a holiday cottage
A modern four-bedroom Victorian home, within walking distance to the high street
A luxury apartment in the Gothic mansion of Wyfold Court in Kingwood, offers six bedrooms spread over three floors and a turret
This school conversion, near Stockwell Tube, oozes New York loft style. The one-bedroom flat features double height ceilings and exposed brick work
This six-bedroom Georgian home is on three floors with open fireplaces, a two-oven Aga, an annexe, and cottage gardens with outbuildings and a car barn
High Crest House covers an impressive 9384sq ft, with almost three acres of grounds including a tennis court and summer house enclosed by electric gates
A six-bedroom farmhouse with separate accommodation in converted stables. Situated in the village of Church Aston, within walking distance to the market town
A two-bedroom flat with under-heated walnut floors and bespoke built-in storage. The Tube and Clapham Common are a short stroll away
A refurbished seven-bedroom townhouse with staff quarters, cinema room, superb gym, steam room and plunge pool
A minimnalist four-bedroom home designed to the highest spec, featuring glass walls and a kitchen space lit by a glass roof