We are currently in a very low interest rate environment, which is putting huge pressure on those that live off their investment income. What increases this pressure is inflation, as measured by the Retail Price Index (RPI).
Currently the Bank of England base rate is at a 350 year low. To that mix we must also add annuity rates at or near an all time low, making income generation difficult for many.
But all is not lost. A good starting point is to understand your annual spending. It is one of the first tasks we undertake with new clients. Exactly what do you spend each year? How might your spending plans change over the next few years?
The next stage is to review your current portfolio. What are your assets worth? Where are they invested? How does the overall balance of your portfolio look? If you have invested assets of say £1M and £950,000 is on deposit you might like the safe nature of this approach but it could also be the reason why you don’t have sufficient income. Find out more about devising the right financial strategy.
If on the other hand you have invested assets of £1M and £950,000 is invested in shares you might have the income you need but the risk might be excessive. So we discuss with you this balance of assets and agree with you an appropriate “asset allocation”.
The stock market investments you hold may not be maximising income. An investment fund in shares with an “income” style can currently offer income in the region of 4% currently.
If you consider corporate bonds funds, the income can be in the region of 5%. Of course the risk aspect is also important so we would not advocate a “gung ho” approach to investing everything in the stock market and hoping for the best! It is about the overall balance of the asset you hold to suit your appetite for risk.
Tax plays a big part in maximising income. Income from ISAs is tax efficient so it is important wherever possible to use the ISA “wrapper” to boost income. All UK citizens have a personal allowance. This is the amount you can earn before you pay income tax. If you have a spouse/partner are you maximising the split of income between you to be most effective? The personal allowance is £8,105 in 2012/13 tax year and if you are over 65 it is higher (£10,500) and over 75 higher still (£10,660).
So if you are feeling that your income is under pressure or you just want to review your current arrangements, you need to discuss this with a financial planner. Contact us for an informal chat about getting the right financial advice.
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"I use Holden & Partners to manage my pension arrangements and have come to rely on the way they proactively monitor things and recommend adjustments based on changes to economic or market conditions. Holden and Partners have been excellent and has always provided me with very practical advice in relation to my finances."
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