With interest rates low, what are the alternatives for generating an income?
Interest on savings is not the only way to earn an income from your investments. Here are five unexpected income generators that you might not have considered.
1. Premium Bonds
Backed by the government and run by National Savings & Investments, Premium Bonds give pretty much the highest rate of return of any available instant-access home for your money. The nearest thing they have to an interest rate is the annual prize rate - currently 1.4 per cent. Returns will vary, since Premium Bonds are a form of lottery, with prizes ranging from £25 to £1 million. The maximum investment is £50,000 per person.
2. Investment Trusts
These are a riskier prospect, as investment trusts are traded on the stock market and can go up as well as down. However, the way they are structured means they are allowed to put aside some cash during the good times to ensure they can pay out dividends when times get tough. Some of them have increased their dividends annually for over 50 years. Investment Trusts should only be considered as part of a properly diversified portfolio, so it’s best to talk to a financial adviser before going down this avenue.
Annuities used to be the default option for those wanting a guaranteed monthly income in retirement. However, since annuity rates dropped and pension freedoms arrived, many retirees have chosen not to purchase an annuity.
But for some, an annuity is a good way to secure a regular income. With better rates for those in poor health and the possibility of buying a policy that protects your spouse or protects against inflation, they are certainly something those who are coming up to retirement need to consider as one of their options. A financial adviser will be able to help you decide whether it is the right product for you.
4. State pension top ups
While the state pension usually pays out less than a private pension, once you reach the right age it is a guaranteed payment for life and therefore something to be considered when calculating your overall income. However, if you’ve not paid in enough beforehand you might not get the full amount. If you’ve had employment gaps when you haven’t paid national insurance, you might not have the full 35 qualifying years to get the whole payment. It’s not always worth buying back extra years but a financial adviser will be able to help you work out if this is something to consider. A state pension should only be part of your retirement strategy though, as it’s unlikely to provide enough to live on.
5. High-yielding shares
Dividend-paying shares are hard to find right now, since many companies cut their pay-outs during the early stages of the coronavirus crisis. However, at the time of writing, the FTSE 100 group of companies had a yield of over 3.5 per cent - well above interest rates currently paid by the banks. It is riskier of course, and a good financial adviser will help you put together a portfolio that matches your own risk tolerance. The value of your investments can, of course, go down as well as up, while as we’ve seen in recent months, dividends are not guaranteed.
To work out how you can arrange your finances to generate a regular income, get in touch to set up a meeting with one of our friendly financial advisers. Your first meeting is free, and your adviser will get to know you and your individual situation so you can start creating a financial plan that works for you.
This article is for information purposes only and is not intended to recommend suitable investment strategies. You should seek professional financial advice before taking any action. Please note the value of investments and the income derived from them may go down as well as up.