This lack of insight into our own mortality has led to the widespread adoption of the 4% rule. This is a complex area, so again, speaking to the experts would be recommended.How much money do I need in retirement? A question that would be simple to answer if not for one inconvenient nuance of retirement planning – the fact that nobody knows how long it will last. Inheritance payments can often attract inheritance and/or income tax on any profits generated from it, depending on the value of your loved one’s estate and your current income threshold.Buy a property? Invest in a fixed rate bond? Donate to charity? Depending on the amount won, it could be prudent to speak to a financial adviser about the best course of action. Nonetheless, anyone lucky enough to win big on the lottery will have a lot of decisions to make about what to do with the cash. Lottery wins are exempt from tax, which means you won’t be lumbered with a huge bill after receiving your winnings. It’s worth pointing out that if you’ve lost your job, redundancy pay won’t count towards your eligibility for the new-style Jobseekers Allowance, though it may still impact other means-tested benefits. The amount received will often need to be used to provide an income while the recipient finds a new position, which means keeping the money in an accessible account could be preferred. Unfortunately, redundancy is becoming more common following the Coronavirus pandemic, which means an increasing number of people will be in receipt of redundancy pay. Citizens Advice could be a good place to start. If you need to claim benefits but are worried about the impact of a lump sum payment, make sure to seek support. Most benefits won’t consider savings below the £10,000 threshold. Generally speaking, you won’t be able to claim for the majority of means-tested benefits if you have over £16,000 in savings, and if you have over £10,000, the amount you’re eligible for will begin to reduce. These include Universal Credit, Housing Benefit, Pension Credit and Council Tax Support, which are all designed for those on low incomes and take into account any capital you have (including savings accounts, investments, Premium Bonds and property), which means if you are in receipt of a lump sum payment your entitlement may be reduced, or you may not be able to claim at all. Find out more about the FSCS and similar schemes by reading our depositor protection scheme guide.Ī lump sum could have a significant impact on your eligibility to claim certain means-tested benefits, as the amount you get typically depends on your income and any savings you may have. Make sure to bear in mind that the Financial Services Compensation Scheme only protects £85,000 of savings per person per banking licence, so if you’ve got a bigger sum than this, you may want to split it between different banks, or opt for an NS&I account which is 100% backed by the Treasury. However, where you ultimately choose to save your lump sum will depend on how much you have. This way, all interest earnt is entirely tax-free and will continue to be so for the duration you keep your money invested, regardless of what happens to savings rates and the PSA in future. If you haven’t used your ISA allowance for the year and the lump sum amount doesn’t take you over the £20,000 annual limit, investing in an ISA – be it a monthly interest account, easy access or fixed rate ISA – could be an ideal solution. It’s important to remember that investing a truly significant lump sum in a savings account could result in you being taxed on the interest earned if it exceeds the Personal Savings Allowance (PSA), which is where an ISA can come in. This option gives you limited access to your funds, or often none at all, but has the benefit of generating more interest over the long term, with savings rates typically being higher on fixed bonds than easy access accounts. Or, you may want to invest in a fixed rate bond, which will allow you to watch your initial investment grow with the benefit of compounding. This has the benefit of keeping the original capital intact while giving you a regular cash boost, though bear in mind that the effects of inflation may erode the value of the original sum over time.Īnother option is to use the amount to provide an income directly, in which case being able to access your money is key – perhaps keeping it in an easy access account where you can dip into your savings pot whenever you wish. The main options are:ĭepending on the size of the lump sum you may be able to use the interest generated to supplement your income, such as by opting for a monthly income savings account and getting the interest paid away into your current account. This will all come down to what you want to achieve from your savings.
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