Luck of the draw

Posted on: 02 February 2016 by Steve Wanless

Don't treat the management of your retirement income like a lottery, writes Steve Wanless.

lottery of retirement income

No amount of planning and preparation can help you win the National lottery. That comes into play when your numbers come up for that once-in-a-lifetime bonanza.

Many have been unhappy with the recent National Lottery changes made by Camelot – not least adding an extra ten numbers when making your choices – but don’t include David and Carol Martin in that bunch.

They are the Scottish couple from Hawick who have recently won half of the record jackpot of £66 million.

That Lottery ticket with the numbers – 26, 27, 46, 47, 52 and 58 – earned them £33,035,323!

Mind you, our National Lottery pales into insignificance when you go around the globe. Spain’s El Gordo lottery (the Fat One) had a prize pool of $2.45 billion in December – while the USA’s Powerball hit $1.5bn in January.

The El Gordo jackpot goes to thousands of ticketholders, while the Powerball had one winner, who can choose to take a smaller lump sum immediately or annual payments over 29 years which guarantees the entire “pot”.

The recent changes made by Camelot may have made jackpot winners less frequent, but the jackpots will be higher. The chances of winning the jackpot have increased from 1 in 13,983,816 to 1 in 45,057,474.

No one can deny the claim that winning the jackpot will be a life-changing experience. The Martins announced they would be taking early retirement and who can blame them.

Choosing the right investments

Their immediate problem, after getting over the initial shock, will be how to best protect and hang on to their new-found wealth. In many ways, the hangers on and begging letters will be the least of their worries.

“It will certainly change our lives, but as people it won’t change us. We were happy without the money, so hopefully we will be happy with it,” admitted David Martin.

They will discover, like millions of others in the aftermath of the 2008 recession, protecting your investments and savings is no easy matter, even with the specialist input of an Independent Financial Adviser (IFA).

Savings rates are at record lows, according to the Bank of England. The average rate on Individual Savings Accounts (ISAs) fell to 0.85% in December, down from 0.99% the previous month.            

Instant access accounts were worse, down to 0.48% from 0.54%. The Financial Conduct Authority (FCA) reported that some individual banks were paying interest rates as little as 0.01%!

The National Savings & Investments (NS&I) did well with its guaranteed “pensioners” bonds last year. Those bonds have just started to mature, having paid a fixed 2.24% after tax (2.8% pre) in that first year.

To continue investing with NS&I there is no special deal for pensioners. What is available is its standard Guaranteed Growth Bond, which pays 1.16% (1.45%), just under half.

Wealth protection

Another problem for the Martins is how to make sure their money is safe. All that is guaranteed if their bank or building society goes “bust” or failed would be the first £75,000, reduced at the start of 2016 because of the fall in the value of the Euro.

A joint account would guarantee the Martins £150,000, but they would need to place their money in 220 different financial institutions to protect it all!

The Martins will be provided with specialist financial help and they will have plenty of choice regarding what to do with £33m. Saving for that raining day no longer seems necessary, but they could still make costly mistakes.

We might not have been as lucky financially as the Martins, but we can still dream about what to do with “our” £33m. Spending, while protecting and investing, such a large amount, would be an interesting financial exercise.

For most, property would be a priority.

The Martins, after admitting their first purchase would be a first-class ticket to bring their daughter Lisa home from Australia, are planning a new home in the countryside near where they live now and, perhaps, a holiday home in the sun.

Risk strategy

The bigger question is how much exposure the Martins should have to the vagaries of the stock market.

The Royal Bank of Scotland (RBS) recently sent a note to its clients warning of a “cataclysmic year” with stock markets falling by 20% and the price of oil collapsing to $16 a barrel.

The note continued: “Sell everything except high quality bonds. This is about the return of capital, not return on capital. In a crowded hall, exit doors are slight.”

The RBS’s credit chief added: “China has set off a major correction and it is going to snowball. Equities and credit have become very dangerous.”

The one area of concern that will not affect the Martins is family debt. The insurer Aviva claims that household debt has risen by 40% in the past six months. To balance this, though, the typical family’s saving pot now stands at £3,150 – five times what it was in 2010.

Only time will tell whether the Martins enjoy their windfall as much as many predict.

“If we had won £50,000, we would probably have been dancing round the living room,” said David Martin. “But when we were sitting looking at each other and we had won £33m, we didn’t speak to each other for about five minutes. We were in total shock.”

That’s the effect £33m would have on most of us!

For a free, no obligation initial chat about your individual finances, call us on 0800 0112825, e-mail or take a look at our website

Share with friends

Do you agree with this Article? Agree 0% Disagree 0%
You need to be signed in to rate.

Loading comments...Loader

Do NOT follow this link or you will be banned!