Making the wise investment choices is essential to retiring first. Tim Knight, a 55- yr- old captain from Wiltshire, hopes that to bridge the gap in his finances in order to keep work in only two years.
“I’ve been investing for generations, starting with a ‘Pep’ in the 1990s. Since then my plan has just been to get and forget,” he says.
“I merely continued to contribute until the economic crisis of 2008, when I had no other sources of income. I paused for a while before the pandemic started. I bought a few stocks during the fall – some of them worked, some of them didn’t. I lost a ton on Cineworld.”
After years of consistent efforts and a protracted bull run on the stock market, Mr. Knight and his wife’s assets are today worth about £312,000.
“We have a lot in a few individual stocks, such as Unilever, because of an inheritance,” he said. However, I want to make the investment more focused on helping us through retirement.
Ultimately, Mr Knight and his family are of around £50, 000 each month. Mr. Knight, who has worked for the Royal Air Force for 16 years, now receives an index-linked income of £18, 000.
“I left the RAF in 2007, and in my next career I chose cash payment in lieu of a pension, but I may pay off my mortgage.”
Mr Knight owns his house in Wiltshire, which is estimated to be worth around £1.2m. He started working for his current employer about a year ago, where he makes £80,000 and contributes around £600 each quarter to a defined contribution income with Nest.
“This income is negligible though, truly. I would like my Isa to aid me reach my goal of £50, 000 in pensions, with as much of that as duty free as possible. In the run-up to the summertime of 2026, when I’m hoping to leave work, my wife and I will help the most to our ISA.
Paul Derrien, chairman at Canaccord Genuity Wealth Management
A specific revenue of £50, 000 a year is going to be small, but probably possible. There would be £20, 000 of gross monthly salary from the Isas and a comparable indexed number from the RAF income if the Isa goods produced 5pc money (which is currently at the top end of what is reasonable) and the assets have reached £400, 000.
Any remaining funds could be used to offset the funds Mr. Knight is currently contributing. Their state pensions ought to also aid in bridging the gap.
There might be a better alternative than adding to the Isas, which is Mr Knight’s pension. Given his salary, he is able to move up to £60, 000 gross into a pension each year, which could be funded by their existing investments and savings.
There are two major benefits. First, it’s a way to reclaim taxes earned on income (some of which are at 40pc), and second, if he transfers some of his assets into a new estate, the money will be exempt from inheritance tax.
Additionally, it is important to note that because Mr. Knight’s salary is more than £60,000 and there haven’t been any pension contributions in the past, he could use some of the allowances that have been carried forward.
Now turning to the Isa portfolio, it seems that most of the investments are in shares, infrastructure and commodities. This is fine while Mr. Knight is employed and does not require any other income. However, his risk outlook is likely to change as retirement draws near, and some portfolio reconstruction should be carried out now.
If Mr. and Mrs. Knight want to receive 5 percent of the Isas, they must examine the investments that do not meet this standard. Generally, So it makes sense to move these investments into funds and low cost investment trackers.
It is currently possible to generate around 5% of fixed income and more from infrastructure (such as The Renewables Infrastructure Group, which is already present). I would invest 40 percent of the portfolio in fixed-income and infrastructure investments that would provide the required level of income while holding 60 percent of the portfolio in shares.
The iShares UK Ultrashort Corporate Bond fund, iShares US Treasury 7- 10 year Hedged ETF, GAM Star Credit Opportunities, and TwentyFour Strategic Income are some of the fixed income funds we look at in our portfolios.
When constructing income focused portfolios we look at a number of funds which include: Artemis Income, Schroder Global Equity Income, Aberdeen Asian Income, City of London and Law Debenture (which are already held by Mr Knight), iShare UK Dividend and Ecofin Utilities and Infrastructure.
Zoe Gilliespie, director at RBC Brewin Dolphin
As Mr. Knight approaches retirement, he might want to review his overall attitude toward risk and portfolio investment strategies. He might not be able to lose as much as he did prior to the investments.
Addition of some fixed income assets, such as government bonds or gilts, could result in a higher income yield and, in turn, lower volatility. The current portfolio has around 10pc in funds that are in areas outside of stocks, such as infrastructure, property, and commodities.
Overall, Mr. Knight’s holdings are unbalanced; a more equitable distribution of assets will reduce the performance skew from larger holdings.
For example, the largest individual holding is Unilever, which accounts for over 15pc of the portfolio, so the underlying performance would be influenced by its share price. The share price has produced very little in the way of a capital return over the past five years, despite having a dividend yield of more than 3.5%.
I would be concerned about the Schroder UK Alpha Plus fund’s high exposure, whose performance over the past five years has been mixed.
The current portfolio has a and only has a portion of foreign markets. The United States has a high ranking for the highly performing growth-focused technology companies because about half of the world’s global equities are listed there.
A more general global fund might have a better asset spread because global funds typically have a US bias, but Axa Framlington Health fund only invests in one particular market sector, so a global fund with a wider spread might be a better option. A fund like the Fundsmith Global Equity fund would give US companies a greater exposure to global stocks.
Alternatively, Mr Knight could invest directly in US funds, either through a passive strategy or using an actively managed fund. The GQG Partners US fund could be an active option while a straightforward S&P 500 tracker would provide a passive view of the US.
Asian and emerging market funds, which historically have been more volatile, have a significant weight in the portfolio’s weighting. I might think about selling some of these holdings.
Mr. Knight also mentioned that he is putting some extra money into the City of London Investment Trust, which he believes to be “safe.” However, the trust invests heavily in stocks and therefore can be affected by market volatility.
I would suggest moving this money into another asset class, such as bonds, if he is looking for something more secure.