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How do I generate a £70,000 yearly income?

A reader asks how to optimise his portfolio – and whether to return to the workforce
How do I generate a £70,000 yearly income?
  • Terry is considering whether to re-jig his portfolio to add diversification and resilience
  • He seeks returns of 5 per cent, and will look for a gross income of £70,000 in the future
Reader Portfolio
Terry 57

£300,000 in an Isa and £40,000 in a general investment account, plus pensions, residential and buy-to-let properties, cash and Premium Bonds


A 5 per cent investment return and a gross income of £70,000 a year

Portfolio type
Investing for growth

Terry is 57 and left the workforce last year. He has a £615,000 defined contribution pension pot and two small defined-benefit pensions that should pay him around £8,000 a year from the age of 60. He has a home worth £1.5mn with a £525,000 mortgage on a base-rate tracker, a buy-to-let property worth £315,000 with a £105,000 mortgage that generates a gross income of £11,700 a year, £340,000 invested in Isas and general investment accounts and £50,000 in NS&I Premium Bonds. He has another £100,000 in easy-access cash.

He currently wants a £35,000 annual income, but wishes to avoid touching his pension and Isa assets until he turns 60, by which point he hopes to have downsized and become mortgage free. He may sell the buy-to-let property to assist with that.

Terry then wants a 5 per cent return from his investments and a gross income of £70,000 a year. However, recent uncertainty prompts him to ask whether he should return to the corporate world, “at least until the storms ease”.

“I left work late last year after re-evaluating life during Covid-19,” he says. “Although I do not want to retire yet I am currently not proactively looking for work, so have no income outside of my savings and investments.”

Terry started investing around 15 years ago, but mainly used funds highlighted by his investment platform until the pandemic hit.

“Covid-19 was a wake-up call and I spent a considerable amount of time trying to educate myself – however, I have become too involved, checking my portfolio several times a week,” he says. “I would like to reach a more balanced approach with a well-diversified portfolio and review it only quarterly.

“I probably have a greater-than-average appetite for risk, but don’t consider myself a high risk taker. Big drops of 20 to 30 per cent are hard to stomach but I tend not to sell, especially if I feel the share or fund may recover. I have taken more risk with my Isa because of the relative security of my larger workplace pension.

“I have sold out profitably on a number of shares and funds but have a tendency to hold onto the losers. I bought into Monks (MNKS) and Scottish Mortgage (SMT) on perceived weakness last year only to see further significant drops.

“I try to ensure that no single holding accounts for more than 5 per cent of my portfolio and going forward I would prefer not to hold any individual shares, as they are too susceptible to unexpected shocks.

“Although I am in the red across the majority of my current holdings, I am wondering whether now is a good time to reorganise my portfolio to improve diversification and resiliency, selling lossmakers and immediately reinvesting in other depressed funds and trusts better placed for a recovery. For example, selling Montanaro European Smaller Companies (MTE) and buying Barings Europe Select Trust (GB00BKXBBL77).

“I am thinking about increasing my holding in the Renewables Infrastructure Group (TRIG) to 5 per cent, as this trust seems relatively immune to the turmoil and should be well placed to capitalise on the accelerated migration to new forms of energy.

“I worked for 35 years in technology and I am a firm believer that we are still only in the early stages of how it will shape the world. Together with healthcare, I feel these two themes still have the most promise.

“My workplace pension is invested in a single default ‘balanced’ fund, Scottish Widows Pension Portfolio Three (Series 2). I am considering whether this is the best place for the largest part of my investment portfolio or whether to move it to the Pension Portfolio Two, which has larger weighting towards equities (85 per cent) to take advantage of the bounce when it comes.”


Terry's portfolio
HoldingValue (£)% of portfolio
NS&I Premium Bonds50,00010.1
Vanguard FTSE Developed World ex UK Index (GB00B59G4Q73)20,1094.1
Capital Gearing Trust (CGT)19,9694.0
Vanguard FTSE 100 UCITS ETF (VUTE)19,8314.0
Lindsell Train Global Equity (IE00B644PG05)17,4033.5
Blackrock European Dynamic (GB00B5W2QB11)16,9643.4
HarbourVest Global Private Equity (HVPE)16,4343.3
Artemis US Smaller Companies (GB00BMMV5766)16,3633.3
Polar Capital Technology (PCT)16,3323.3
Fidelity Asia Pacific Opportunities (GB00BQ1SWL90)16,1353.3
Monks (MNKS)13,0312.6
Worldwide Healthcare (WWH)14,1122.9
BlackRock Smaller Companies (BRSC)13,0562.6
iShares Automation & Robotics UCITS ETF (RBTX)12,4242.5
Lloyds Banking Group (LLOY)12,3092.5
Renewables Infrastructure Group (TRIG)12,0392.4
Oakley Capital Investments (OCI)11,6022.3
Scottish Mortgage (SMT)10,9862.2
Vistry (VTY)12,4002.5
Montanaro European Smaller Companies (MTE)9,5041.9
Baillie Gifford Japan (BGFD)9,2131.9
Sylvania Platinum (SLP)7,9191.6
Vodafone (VOD)3,0660.6
ITV (ITV)2,5340.5




Jason Barefoot, chartered financial planner at Ascot Lloyd, says:

Projecting your current portfolio to age 60 at 5 per cent growth per year, there would be available an annual net income of £39,949 if you simply drew 4 per cent of the capital, then increased this by inflation each year.

Your higher-than-average tolerance of investing is favourable to this strategy. I advise the continuation of the buy-to-let income for diversification, increasing the rent by inflation each year is a good option. Your income would exceed your net expenditure once the state pension commences at the age of 68, with the equity from the main residence house sale subsidising the above plan until then (by releasing around £125,000 net). Earnings received on top of your current position would increase the likelihood of an enjoyable retirement.

In line with your tolerance and investment requirement to achieve 5 per cent growth per year, it’s advisable to hold 80 per cent of the portfolio within equities throughout your life. There will be fluctuations, although it’s essential that you stay invested throughout all the market cycles to fully capture the returns of these companies.

The balance will be held in defensive securities to minimise volatility. The table outlines possible fund sectors including percentage allocated, cost and rationale for each. Annual rebalancing is advised, too.



% weighting

Approximate cost (%)


Global value



To target small and medium sized value companies

Emerging markets equity index



Geographic diversification

Global all cap index



Capture the broad market’s returns

Global short-term corporate bond index (hedged)



Bond term and issuer spread. Hedged to reduce currency risk

Global bond index (hedged)



'Play' equity fund(s)



To accommodate Terry's investment beliefs

Weighted cost




Your preference is to hold no more than 5 per cent in one fund, but that approach will create portfolio inefficiencies. We’ve left 10 per cent in a play fund, which could be invested equally between your existing trusts, Renewables Infrastructure Group and Polar Capital Technology (PCT).

Your proposed pension fund does not square with your philosophy, but you need to make sure there aren’t any enhanced benefits within the pension. Additionally, you could invest the surplus £80,000 cash into the general investment account for now, since markets are onsale compared to earlier this year, andtransfer £20,000 from the account to the Isa each year until the former is at nil to maximise tax efficiency.


Rob Morgan, chief analyst at Charles Stanley, says:

You have plenty of options given the level of resources, but you should decide on what is happening career-wise before making major changes. Drawing any taxable income from your pensions is inefficient if you do carry on working. From a tax perspective, it may be optimal to sell your buy-to-let property when you are not earning as a lower income tax rate will mean you pay less capital gains tax.

There are lots of moving parts and you could benefit from fully mapping out various scenarios. This should give you a better understanding of the options available and the range of outcomes in various circumstances.

In the meantime, it is best to keep things flexible. I assume you are drawing down cash currently to supplement property income. It is worth bearing in mind that your mortgage is going to become more expensive to service as interest rates rise. Consider keeping enough cash available to pay off your mortgage as and when they do, especially if you sell the buy-to-let. You will need to balance the lost rental income with the mortgage payments you will be saving.

You should check whether you have 35 years of national insurance contributions which are required to get the full state pension. This can be done via the website. If you are short, you can buy extra years.

Turning to your investments, it seems like you are caught between pressing on the accelerator for growth or dialling back volatility. The best way to think about it is to prepare for different outcomes rather than invest for a single ‘likely’ one, so you should aim to maintain a balanced approach with plenty of diversification.

At present, you have a bias towards equities, although less so in your Scottish Widows pension where there is around 20 per cent in bonds. Following a period where a traditional balanced portfolio has performed poorly, owing to both bonds and equities falling in tandem, the diversification benefits of holding both could start to reassert themselves as interest rates peak. It may be best to keep a decent amount of bonds and other more cautious exposure to guard against the possibility of recession and a sharp fall in inflation that may turn out to be better for fixed income investments than for company earnings.

You also have a bias towards more growth-orientated investments. As we have seen over the past year, being aligned to a particular style can lead to higher volatility. With Monks, and especially Scottish Mortgage, sentiment has played a significant role in performance. Shares in the latter have dropped to a double-digit discount to net assets, having been at a 5 per cent premium in November last year.

If you are looking to dial this bias back then more value-orientated funds, dividend-producing investments and alternative assets will help stabilise the portfolio. If we do get a whipsawing market, then a steady income will be valuable to returns.

You also indicate that you might be happier being more hands-off. A ‘set and forget’ approach could mean using more multi-asset funds at the core of your portfolio, either active or passive, to take the heavy lifting away from you.