Investing in your 50s - the widow with a lump sum
How should you invest once you're in your fifties? That's the question we look at in the last of our three-part series on where to invest your money at different stages of your life.
In our third case study of this series, we look at the options for a recently bereaved woman and ask financial adviser Mel Kenny to make some suitable fund recommendations.
Angela Mitchell, recently widowed
Angela Mitchell is a widow in her late fifties with a grown-up daughter. She's a basic-rate taxpayer with a modest pension, who has received a substantial insurance payout following her husband George's death last year.
However, this money is still to be invested.
Her job in admin pays her a modest £18,000 a year, so she's looking to generate some income from her investments. She currently has £10,000 set aside in cash ISAs and still has the £200,000 insurance settlement to fall back on.
She is very keen to choose the right funds to help her generate a sustainable income in later life, even though she will be working for the next few years and hasn't ruled out the possibility of taking on some part-time work after she reaches retirement age.
The lump sum insurance payout Angela has received can be used to good effect. She could consider making a contribution to her pension, but will also need to assess her longer-term needs, particularly the standard of living to which she will aspire in retirement and any care needs she may have in later years.
Angela obviously hasn't got a lot of time before retirement - a few years at best - so will have to rely mainly on the money she has already acquired. Nor can she afford to take too many risks with it, as she may still have many years ahead of her that she will need to finance.
Given that the insurance payout she received pushes the value of her total assets, including her home (which she owns), over the inheritance tax nil-rate band threshold of £325,000, it's worth her looking at IHT planning options as well.
She may, for example, look to make some financial gifts to her daugher or other family members out of the insurance settlement, although the amounts will depend on how much money she expects to need in the future.
MetLife Income for Life Bond
"This bond enables you take a guaranteed minimum income from the outset, or defer to a later date. Depending on which option you select, if the value has increased at certain points, the income payable is revised upwards to a new minimum. If it's deferred, the fund will increase by at least 3% a year."
Invesco Perpetual Distribution
"Invesco's fund combines the fixed-income brainpower of Paul Read and Paul Causer with that of equities guru Neil Woodford. It's a long-established fund that enjoys an AAA OBSR rating, the highest level awarded."
"The fund's intention is not to 'shoot the lights out', but to soften short-term market volatility and deliver smooth investment performance over the long term. It enjoys an OBSR highly commendable A rating."
The tax levied on the total value of your estate after you die. IHT has to be paid by the beneficiaries of your estate before they can receive any of the money from it. The money can’t be taken from the value of the estate _– it has to be paid before any money can be released. There is an IHT threshold – known as the “nil-rate band” – below which no tax is levied (£325,000 in 2011/12). Any amount above the nil-rate band is subject to tax at 40%. If your estate totals £600,000, there is no tax on the first £325,000; however your estate will pay 40% tax on the remaining £275,000, a total of £110,000. Prudent tax planning can reduce your IHT liability, so always consult a specialist solicitor.
An interchangeable term for shares (UK) or stocks (US). Holders of equity shares in a company are entitled to the earnings and assets of a company after all the prior charges and demands on the company’s capital (chiefly its debts and liabilities) have been settled. To have equity in any asset is to own a piece of it, so holders of shares in a company effectively own a piece proportionate to the number of shares they hold. (See also Shares).