I'd really appreciate some financial advice for my mother in law. We live in the

[Mitch76]

I'd really appreciate some financial advice for my mother in law. We live in the UK, she's 68 years old, and lives on a very low income of £6350. She's had to lead a very mustachian lifestyle since her marriage brake up. She lives in a very expensive area and after many years of trying, we've finally managed to persuade her to sell her house and get something cheaper to free up some capital. Her house is worth over £600,000, and she's decided to move nearer us, where a similar sized house costs £300000, and a nice smaller house can be bought for about £180000. So my questions are if she manages to free up a minimum of £300000, where would be the best place in invest it? Vanguard funds are now available here in the UK, I'd like to hear people's thoughts on suitable stock/bond ratio. And regarding the 4% withdrawal rate, would she take that out annually by selling some units? Or monthly? Many thanks in advance, I've learned so much from this group already. Cheers.

[marty998]

She could simply just live off the dividends from 300k invested, no need to sell anything.

Surviving off just 6000 quid is impressive.

[Heckler]

A 100% bond fund worth 300k thats paying 2.3% (after fees) would give her 6900 annually (pre-tax).  Not sure if you can get that interest rate in the UK but my VAB (canadian bonds) is paying 2.6% interest today.

Keep taxes coming in mind woth all these responses. At such a low income, does she pay income tax?


Add 10-20% equity at the most if she is looking for upswing  (and down!)

[Mitch76]

She can earn £11500 tax free, anything after that is taxed at 20% until income hits £45000. In the UK there are tax free accounts called ISAs, and you can put in 20000 each year, everything in an ISA is then exempt from income and capital gains tax.

[talltexan]

Frankly, that 300,000 sounds like it has the potential to triple a very low standard of living.

SWR at age 68 doesn't need to be 4%, 6% should be reasonable.

[Mighty-Dollar]

I'd like to hear people's thoughts on suitable stock/bond ratio. And regarding the 4% withdrawal rate, would she take that out annually by selling some units? Or monthly

120 - 68 years old = 52% stocks / 48% bonds.
Pick a total stock market index fund (or S&P 500 index fund) and a total bond market index fund. Set it up so that dividends are not reinvested. If she needs more (she probably will) then simply sell some of her "seed corn" so to speak. Obviously the more often she places sell orders the more she racks up trading costs, although we're only talking about $10 trades. I would want to keep my money invested rather than pulling big chunks out once per year.

[Tyler]

So my questions are if she manages to free up a minimum of £300000, where would be the best place in invest it? Vanguard funds are now available here in the UK, I'd like to hear people's thoughts on suitable stock/bond ratio. And regarding the 4% withdrawal rate, would she take that out annually by selling some units? Or monthly?

I personally prefer to take out 1 year of expenses at a time at the same time that I rebalance.  That makes it really easy to set your annual budget and manage taxes.  It also reduces hassle, as there's really no need to be messing with your brokerage account monthly in retirement. 

BTW, one thing to keep in mind is that the well-known studies that established the 4% rule were based on US stocks and bonds priced in USD and adjusted for US inflation.  Once you adjust for UK fund options, inflation, and exchange rates the SWR can be very different so be careful not to blindly follow a US-based rule of thumb.  To see how withdrawal rates work in the UK, try this calculator and set the country to the United Kingdom.  I also strongly recommend reading Monevator for excellent UK-specific investing advice. 

[UKstache]

As I understand it nobody in the UK should be on that little. Guarantee pension credit tops up to 159.35 a week, so over 8 grand a year. Check she is claiming everything she is entitled to.

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