Helen Gibson, 70, a retired teacher from Bishop's Stortford, doesn't want to worry about money as she gets older. Helen recently sold her family home to move into sheltered accommodation, and has given away some of the proceeds to her family. She has paid off her children's mortgages and has placed £5,000 in tax-free savings plans for each of her four grandchildren, making the most of inheritance tax gift allowances.
But Helen also wants to invest the proceeds from the sale to ensure her own wellbeing. "My pension gives me £1,200 a month, which is sufficient to live on," she says. "I want the £200,000 from my house sale to grow as an investment but also give me a cushion if I need care later."
Three financial advisers gave Helen advice this week: Ben Yearsley from Hargreaves Lansdown, Darius McDermott from Chelsea Financial Services and Chris Wicks from N Trust.
Case notes: Helen Gibson, 70, retired teacher
Income: Helen gets £1,200 a month from her pension.
Monthly outgoings: Her basic living costs come to around £550 per month.
Savings and investments: Helen has recently received £200,000 from the proceeds of her house sale. She also has £3,000 in an ISA and a bond with Credit Suisse worth £12,000.
Mortgage: Helen has no mortgage or personal debts.
Helen has an enviable financial position, but has little room to manoeuvre in terms of investment risk.
"Helen could place £100,000 of the £200,000 proceeds from the house sale in fixed-term deposit accounts," says McDermott. "If Helen is concerned about the state of the banks, this could be made up with £35,000 in a number of accounts as that amount is guaranteed by the Financial Services Compensation Scheme if the bank or building society fails."
He recommends Anglo Irish's one-year bond with a fixed rate of 6.75 per cent or Icesave's 6.50 per cent for three years. McDermott also suggests Helen places £25,000 into an instant-access account so she has some liquid cash if necessary, and Manchester Building Society has an account at 6.31 per cent.
But McDermott also feels Helen should invest in equities if she wants to grow her income. "Helen should begin her equity investments by using her ISA allowance before the end of the year to invest in stocks and shares," he says. "Then she should take up her new ISA allowance after 6 April for the same purpose."
He says a multi-asset fund will provide a decent return but with low volatility, he recommends Newton Phoenix and Insight DTR funds.
Yearsley says Helen should keep hold of her emergency cash: "An internet bank provides a good starting point for an instant-access account for emergency cash," he says. "But use a UK company, as they provide better protection than an overseas operation. I would start with £10,000."
Long-term care planning
If Helen's priority is her long-term care, Chris Wicks suggests an alternative solution. "If Helen needs to go into a nursing home, she will probably have to pay those fees herself, given the current value of her assets," he says. "This would substantially reduce her estate, but because local authorities are difficult to predict, it is difficult to plan for that."
But he adds that, in general, the surrender value of life-assurance contracts is not taken into account as part of these assessments. "This means that Helen could wrap her investments in an investment bond, benefit from the gross roll-up of interest, and it would not be counted towards her estate in this case."
"An off-shore bond is subject to tax at your normal rate, but only when you make a substantial withdrawal. She can also withdraw 5 per cent of the value of the bond for 20 years without paying tax at the time," Wicks adds. Because this is an investment wrapper, Helen can decide on her level of risk and distribute investments between equities in the UK and overseas as well as fixed interest, property and cash, he adds.
Yearsley says Helen has done the right thing by putting power of attorney candidates in place should she become unable to manage her money. "It makes life much easier should the need arise," he says. "And because she has taken advantage of inheritance tax allowances, there should be no IHT to pay on her death."
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