How should I invest my tax-free lump sum to generate income in retirement?

Hello,

At 61 years I have decided to take my company defined benefit pension early and take the maximum tax-free lump sum. This means I will have a reduced pension of £55,000 a year before tax and a lump sum of £268,000.

I would like to invest the lump sum to generate additional monthly income to make up for the reduction in pension of £13,000, while preserving the capital and ideally increasing it a bit. The pension of £55,000 will be my only source of income. My other financial assets are: £60,000 in stocks and shares ISAs, £60,000 in other shares, an old Aviva pension with a value of £50,000, and £50,000 in premium bonds. I haven't used my ISA allowance yet for this year.

My wife does not work but her financial assets are: £200,000 in NS&I fixed bonds (1 year) with 4% interest payable monthly, £50,000 in premium bonds, and a SIPP with a value of £10,000. My wife hasn't used her ISA allowance this year either.

Any suggestions on how to optimise the £268,000 lump sum to generate income would be welcome.

Hi there,

You’ve already done a great job building up a solid financial base, but now it’s all about getting your money to work smarter for you.

Unfortunately, we're unable to provide specific answers or offer advice due to regulatory guidelines. We appreciate this might be frustrating and encourage you to seek guidance from a qualified financial expert who would be best suited to answer your questions. Some advisers offer a free initial consultation which may provide you with the answers you need.

As an immediate observation, you say both you and your wife have got unused ISA allowances for this tax year, which gives you a huge headstart. You could each shelter £20,000 in a Stocks & Shares ISA, meaning you can tuck away £40,000 between you and your partner each year - tax-free.

Within those ISAs, you could focus on income-generating investments to get that balance of income and capital growth. These could include:

• Equity income funds - funds which invest in companies known for paying regular dividends (typically large, stable firms with strong cash flows)

• Low-cost income ETFs - like equity income funds, but can be cheaper because they're usually passive

• Investment Trusts - a type of actively managed fund also known for reliably paying out dividends with the added benefit of expert management

These are just some generic ideas, but for a more thorough, tailored response, it's best to reach out to a qualified financial adviser who will be able to recommend the right strategy for you.

Hope this is helpful!