Family home is a nest-egg for retirement

Financial Makeover


NAME: JIM AND EILEEN MACLEOD

NAME: JIM AND EILEEN MACLEOD

AGE: 45 AND 46

OCCUPATION: SALES DIRECTOR AND CARER WITH THE DEAF BLIND ASSOCIATION

Jim and Eileen will celebrate their 25th wedding anniversary next year with their four children, Dominic, Shona, Vincent and Alexandra. Jim is a director of his company and can buy into the business. They have a repayment mortgage on their house and they see the property as a long-term investment.

When it comes to risk, Jim says: "I was taught to be cautious." He is very cautious. Consequently they have only a few investments exposing them to the stock market. Jim has a small self-administered pension scheme which he holds as cash, and Eileen has no pension. They have surplus income they want to invest monthly and will take more risk with this investment.

Jim and Eileen are looking for a long-term strategy to see them through to retirement and ensure their children can go on to higher education.

The adviser: Tim Cockerill is managing director of White-church Securities Limited, an independent financial adviser in Bristol. Call 0117 944 2266.

The advice: A long-term strategy would tie in their existing investment, their property, Mr Macleod's pension scheme and the children's education. A "float" of ready cash in a building society to meet unforeseen expense is essential, perhaps £5,000 to £10,000. Both have TESSAs taken out last tax year and they can build these to the full £9,000 if they have sufficient cash.

Their house is large enough to cope with a family of six, but in 10 years all the children are likely to have left. Dominic, the youngest, would be 19 and probably at university. That is the time the Macleods will consider moving to a smaller property, releasing equity from the family home.

Predicting the long-term value of property is difficult, but sale should release enough for a good retirement portfolio. They have a repayment mortgage, because endowment value at maturity is uncertain.

They have two MultiPEPs with Skandia, a type with slightly higher charges which allows investors to select from a broad range of funds. If they wish to switch between Fidelity and Perpetual they simply instruct Skandia. This means they do not face the hassle of transferring PEP plan manager.

They also have two single-company PEPs, which are high-risk. The Macleods are relying on one company, rather than a whole spread, as through a unit trust.

If the share price drops so will the the PEP value. Even companies which once seemed rock-solid, say, M&S, can come unstuck.

Mr Macleod, as a director of his printing company, intends to buy into the business. Hopefully, they will do well and his growing shareholding will produce a growing dividend. His pension fund is a small self-administered scheme (SSAS).

He is holding cash, and he should consider buying a property. This will generate a probable income of 9 to 10 per cent on a commercial property. An ideal one would be high street premises leased for 10 years to a well-known retailer.

Mrs Macleod may consider contributing to a stakeholder pension; her earnings dictate how much can be invested or where it comes from.

These are the longer-term issues. The Macleods' most pressing short-term requirement is to invest £150 a month. They are prepared to take more risk with this so two unit trust savings schemes should be used, giving a greater spread of investments which diversifies their risk.

The schemes should be made through individual savings accounts (ISAs) because capital gain will be tax-free and tax on income received can be reclaimed.

The recommended two are Templeton Global Growth, which takes a long-term conservative investment stance and Britannia Special Opportunities which is well diversified, but more aggressive.

The Macleods hope to pay for further education for their children through earnings, although the regular unit trust savings schemes could be cashed in, and they could use the money they have accumulated in their PEPs, starting with the single-company ones.

In time, Mr Macleod's shareholding in his company may be sold to an outside investor, and his pension fund can be used to buy a property which is a holding he will not have to worry about for 15 years or so.

And their own property will raise capital for them in 10 to 15 years, after the children have left.

If you would like a free copy of 'The Independent's' guide to 'High Risk High Reward Investments', sponsored by Whitechurch Securities Ltd, call freephone 0800 374413. If you would like to appear in the Financial Makeover write to Tim Cockerill c/o 'Financial Makeover', The Independent, One Canada Square, Canary Wharf, London, E14 5DL. You must be prepared for your name and picture to be used in the article.

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