How many of us have thought about Retirement Income planning, planned ahead and invested in pensions and savings for a wealthy retirement (sorry senior Gap Years)? Not too many for sure! So how do you STRETCH savings and investments for possibly 30 plus years? First I am not a financial advisor so please don’t think this retirement income planning is advice – just a personal opinion!!
I have the State Pension, a small Teacher’s Pension, a SIPP with Hargreaves Lansdown and ISAs with iWeb (Halifax). Did you know the UK state pension is the worst in the developed world – even ranked below Chile and Mexico! So much for baby boomers being rich – they may have assets but little cash! Fortunately, in the mid 90s I switched to from an Endowment mortgage to an ISA scheme. As luck would have it I invested my monthly savings in the little known (at the time) Neil Woodford’s Perpertual High Income fund. Magic! I am in the lucky position of being able to pay off the mortgage and still have a significant sum invested in ISAs. Over the years I have added funds to the ISAs.
ISA Portfolio for Tax efficient Retirement Income
From my perspective, one of my main aims in retirement is to have sufficient monthly income which will last! If possible, the capital will not be eroded – note for the Labour Party: do not tax ISAs please (some hope with red McDonnell as possible next Chancellor!). Consequently a significant portion of my ISA portfolio is invested in Investment Trusts with dividends.
Why investment trusts? Over the long term and on average, investment trusts tend to deliver better returns than funds (unit trusts and Oeics). An additional advantage for income-seekers: unlike open-ended funds, they are able to hold back up to 15 per cent of the dividend income received from underlying holdings each year, and use it as a buffer for future dividend payments. As a consequence some trusts have increased dividends annually for over 40 years. Below are 10 trusts with a 40 year-plus record of annual dividend increases:
- City of London
- Alliance Trust
- Foreign & Colonial
- F&C Global Smaller Companies
- JPMorgan Claverhouse
- Murray Income
- Scottish American
- Scottish Mortgage
- Scottish IT
- Temple Bar
- Value & Income
Elaborating: Merchants and City of London in the UK equity income sector are on annual yields of 5.1 and 4.1 per cent respectively (paid quarterly) – as of March 2018. Also remember as it is in an ISA package you do pay tax on the dividends!! Capital value: since the low in the financial crisis of 2008, City of London share price has risen from 167.8 to 400p +
About 80% of my portfolio is invested in Trusts and the remainder in Funds and individual shares. Of the Trusts about 75% are in Trusts that yield good dividends. The other 25% is in Growth Trusts to get an increase in capital. I rarely trade the dividend bearing Trusts but dip in and out of the market for Growth Trusts – my favourites are Scottish Mortgage (tends to invest in tech companies like Facebook, Amazon, etc), Polar Capital Technologies (again tech stocks), Monks, MANCHESTER & LONDON. I really like dividend yielding trusts with good dividend cover. If the market drops at least the monthly income is protected! Hopefully (and typically) markets recover fairly quickly!
Shares I rarely buy unless I see a solid company with a good dividend – these Vodaphone and Legal & General were bought in the last market dip
I keep about 15% as cash – to enable to dip into the market when the index retreats! Always take financial advice before investing.
Current Portfolio: TRUSTS, FUNDS, ETF and SHARES
RETIREMENT INCOME TRUSTS
Dividend (annual dividend in brackets)
BLACKROCK WORLD MINING (BRWM) : 4.02%
BLUEFIELD SOLAR INCOME (BSIF): 3.51%
CITY OF LONDON (CTY): 4.1%
CQS NEW CITY HIGH YIELD (NCYF): 7.2%
CUSTODIAN REIT PLC (CREI): 5.54%
EUROPE ASSET TRUST (EAT): 5.6%
HENDERSON FAR EAST INCOME (HFEL): 5.55%
HENDERSON INTERNATIONAL INCOME (HINT): 3.02%
INVESCO PERP ENHANCED INCOME (IPE): 6.47%
MEDICX FUND LTD (MXF): 7.26%
MERCHANTS TRUST (MRCH): 5.04%
MURRAY INTERNATIONAL TRUST (MYI): 3.87%
NORTH AMERICAN INCOME TRUST (NAIT): 2.85%
PRINCESS PRIVATE EQUITY (PEY): 5.57%
SIRIUS REAL ESTATE (SRE): 4.4%
TWENTYFOUR SELECT (SMIF): 6.57%
BLACKROCK EMERGING EUROPE (BEEP)
FIDELITY ASIAN VALUE (FAS)
FINSBURY GROWTH & INCOME TRUST PLC (FGT)
FUNDSMITH EQUITY (FUUNDS) – up about 40% since I purchased
JUPITER MONTHLY INCOME (RWAABB): 4.6%
ROYAL LONDON STERLING EXTRA YIELD (RLSEB): 6.0%
SCHRODER INCOME MAXIMISER (SIAXIM) : 6.97%
ETF (exchange traded fund)
ISHARES UK DIVIDEND ETF (IUKD): 5.56%
LEGAL & GENERAL (LGEN): 5.79%
VODAFONE GROUP (VOD): 6.29%
On the radar for growth IBT (medical technology with good 4% dividend), and PCT, SMT (both excellent growth stocks but quite volatile), MONKS and WITAN. I have held all these Trusts in the past year.
Retirement Income Planning Advice!
So in summary I am looking for:
a) Dividend Bearing Trusts with good dividend cover and historically unbroken dividend increases
b) Funds with top dividend yields
c) ETFs with growth and dividend
d) Established shares with good dividends
e) Trusts / Funds with consistent Growth.
f) Wrap in ISAs (so no capital gains tax and dividends tax free too) – now £20,000 pa
Money Observer Magazine and their website
Hargreaves Lansdown – extensive information, dividends, and performance
Investment Trust Insider – good articles and recommendations
Which Investment Trust – comprehensive review of individual Trusts
Dividend Data: Ex-Dividend dates, dividends and payment dates
Morning Star Tools – good for performance ranking Trusts
TrustNet – good for news, performance and ranking by dividend
The Association of Investment Companies is the United Kingdom trade association for the closed-ended investment company industry (ie Investment Trusts). This has plenty of statistics and performance of Investment Trusts. Some useful links:
Analyse investment companies (for example, dividend tab results allow sorting of % dividend payout).
Latest Dividend Heroes
Of course, we have been in a bull market for several years, and a recession is inevitable at some point. Be prepared by having an action plan for a recession. Your portfolio needs to reflect the degree of risk you are prepared to take. Prices can drop, and your capital is at risk. In the meantime, have a happy Retirement!