Michael retired some years ago and has a pension of around pounds 1,000 a month after tax (pounds 13,000 a year) which increases in line with inflation every year. Carolyn is a nurse on around pounds 560 a month net (pounds 8,700 a year). The couple have a range of PEPs, shares and building society accounts worth around pounds 50,000 in total .
Carolyn would like to retire. But with their daughter Jo hoping to go on to university, where they anticipate she would need significant financial support, the Greer Walkers don't think their income would still be sufficient. They estimate they need around pounds 25,000 a year to exist. Could Carolyn afford to give up her job and sweat the couple's savings harder for more income?
What a financial adviser recommends:
The savings the Greer Walkers have are not sufficient to make up the shortfall if Carolyn gives up her job - even if the money is invested purely for income. The extra income that could be gleaned from pounds 50,000 of savings would not come close to pounds 8,700 without fast depleting the remaining nest-egg.
Furthermore, while Carolyn is due a pension from the National Health Service, this is not payable until she is 60, even if she chooses to retire early.
Likewise, the couple's state pensions are not payable for six years in the case of Carolyn, and nine years in the case of Michael.
One option would be to move to a smaller house, so releasing some of the existing equity. But the couple would prefer not to. Instead they think there is scope for reducing their outgoings while at the same time making some money from starting a limited bed-and-breakfast service.
As with many people, the Greer Walkers' financial affairs could be in a better administrative order. They have just received some free Halifax shares care of an account with the former building society that they had forgotten about; Michael also has a free-standing additional voluntary contribution (FSAVC) pension plan that he had forgotten about. This will provide additional income.
The Greer Walkers have around pounds 40,000 in various building society and bank accounts - which is more than they should need - and around pounds 10,000 in a range of PEPs, shares and unit trusts.
They already have income-oriented PEPs with Save & Prosper and Jupiter which are paying the equivalent of 7 per cent of the original money they put in. They should look to take out further PEPs to reduce their cash and to balance some of the more esoteric shares and investments they have - including a number of smaller companies and Save & Prosper China Dragon, a unit trust investing in South-east Asia.
Using both Michael and Carolyn's annual allowances, the couple can "PEP" pounds 12,000 this tax year in broadly-spread income-oriented unit trust plans which would also take their Halifax shares. Over the longer term the PEPs should do better than having their money in the building society, and should eventually produce a higher income too.
That said, until their personal situation is more established, perhaps in the autumn when their financial liability for Jo is clearer and Michael has details of his FSAVC pension income, the Greer Walkers should beware of too much long-term financial planning and of running down their cash reserves too far. Indeed, given that the stock market is presently at an all-time high, it might be worth holding off on the PEPs for a while.
Dr and Mrs Greer Walker were talking to Frank Baldry, an independent financial adviser with The Allan Consultancy, which is part of DBS Financial Management, a leading network of IFAs.
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