Unless there’s a pretty big medical breakthrough that lets us all become bionic men with replaceable body parts and everlasting brains in the future, then we’ve all got one common destiny!
And as Benjamin Franklin once famously said; only two certainties exist in life – death and taxes. But for the savviest investors in the UK at least, this isn’t really true.
The tax-free Individual Savings Account (ISA) and its predecessor the Pension Equity Plan (PEP) have been with us for quite a long time now and many shrewd investors have built up a pot in excess of a million pounds, and sometimes quite a bit more, all within PEPs / ISAs. This means the pot and its contents are completely protected from tax. If the ISA owners withdraw some of their money, they don’t need to declare it as income – and the dividends the investments within ISAs generate don’t count towards income or capital gains tax either. So anyone who has been maximising their PEP and ISA allowances for many years is probably doing very nicely, thank you, depending on where and how they invested, of course.
Now the limits generally creep up each year and if you check out the ISA limit information for the current financial year, you’ll quickly see that you can invest up to £11,520; which is quite a tidy sum to most people and a very large amount for a couple saving together.
In other words, this is far too generous an offer from HM Government not to take up if you can possibly afford it. Yet at the same time, we all want to live a little today if we can. But as the saying goes, we should live as if we’re going to die tomorrow but farm as if we’re going to farm forever. And this is the trick many of us wish we’d learned earlier in life. This brings peace of mind, today, and a happy retirement for tomorrow if we can get the balance right.
So to translate this into investment terms; it’s really all about living one’s life to the full each day from the income the investments provide, whilst letting our capital do the really work for us in generating the income. So invest as though you’ll live forever – but live each day on the income as if it’s your last (without spending the capital).
The hard part comes in deciding the level of capital you’ll need and how much income will be sufficient for you to do this. Also – you need to have a good feel for just how guaranteed that income is likely to prove in practice. This is something you really have to decide for yourself, whilst perhaps taking expert objective advice on the matter which is always a wise thing to do.
Just be careful not to reinvest the income forever, because we’re all going to meet our maker one day.