‘We have $1.5M in the bank but don’t have enough income. What should we do?’

Q: My husband and I have $1.5 million in the bank. As such, we don’t qualify for any government benefit but also get minimal interest as we are reluctant to trust any investment advisers.

As a result, we just live off what we have and the small amount of interest (which is about to reduce yet again) which means we’re slowly depleting the capital we have saved.

I am aware it sounds a lot but when it does not grow and you use the capital constantly, it becomes an issue. We also have to pay full price for everything, including the home care we get for my disabled husband ,which at one stage I was paying $1,400 a month on top of the aged care package we were getting. That has since reduced a little as I have changed companies.

It would help to get information on investing and how to decide who to trust and the costs involved in investing, the likely outcomes if it all goes belly up, plus investing versus term deposits. I am 66 and my husband is 88 so the money needs to last for approximately another 25 to 30 years in my estimation.

A: This is a very interesting question to which there is no simple answer. I recently wrote an article about the impact of appallingly low term deposit rates in Australia on retirement incomes that you may find interesting to read.

My article shows that it is almost impossible to provide a reasonable amount of income from what used to be a substantial amount of money when the average medium to long-term interest-rate in Australia is around 1.5 per cent. This means that from $1.5 million you would only be generating $22,500. You would pay no tax, but this amount is much lower than the full Age Pension for a couple, which is currently $36,582 per year.

In order to match the Age Pension with all your money in term deposits (at current interest rates) you would need to invest $2,438,000. That really is incredible – for you it seems that being a self-funded retiree is a bitter pill.

It would be useful to know the amount of income you need to meet your ongoing living standard. With this information I would be better equipped to give some suggestions about the type of investments that you could make to help achieve more cash flow.

If you refer to my article above, I indicated the type of income returns that are available for investing in other assets (such as shares and property) and I suspect you will need some exposure to these types of investments in order to help reduce the rate at which you are consuming your capital now.

There is a significant irony in the current situation for investors.

That is, if you choose to remain conservative and keep money in term deposits, you will definitely go backwards because you will need to consume capital to make ends meet. Alternatively, if you invest some of the money in shares (Australia and overseas) and/or property you may go backwards from time to time but will at least have a chance of prolonging the life of your investment capital. I wrote recently about the most common income-producing investments you may wish to consider.

In your case I would recommend obtaining advice from a suitably qualified (non-conflicted) adviser. Such an adviser will be able to give you an estimate of costs upfront but it is likely that they can add significant value over and above the cost of the advice. As I do not know where you live, it is difficult to provide a recommendation for a specific adviser. However, I’ve written previously about how to find an independent financial adviser.

Notwithstanding my long experience in financial services, I use an adviser to ensure I am remaining on track. Personally, I have always been comfortable in having some exposure in my portfolio shares and property and at the moment am pleased with this position as my income from these assets is 200-300 per cent above term deposit rates.