Wealth Check: 'Can I have it all: world travel and a pension?'
Sunday 18 December 2005
A vet has set her sights high, but will funds last?
Zoe Belshaw is struggling to work out how she can fulfil two distinct ambitions: world travel today and a pension tomorrow.
To pay for planned time off, the 27-year-old vet isn't sure whether to plunder her savings now or budget carefully for another couple of years.
"On my current salary, I usually have a bit of spare cash left over at the end of each month."
Zoe, who works at a practice in Bognor Regis, West Sussex, has a basic salary of £24,500. But free petrol and car insurance, a housing allowance and a continuing education allowance mean that, in effect, she earns nearer £34,000.
Her savings include £2,000 in a Nationwide Flex current account, which pays 3 per cent (as long as she puts in a minimum £1,000 a month), and £5,000 in a mini cash individual savings account (ISA) - also with Nationwide - paying 4.6 per cent.
"I try to contribute the maximum £3,000 a year into the ISA," she says. "I also have around £200 in premium bonds."
She is determined to start as soon as possible on a pension. "I know I need to save so I can enjoy a comfortable retirement. There is a stakeholder available at work but I haven't been given the full details yet."
Zoe took out student loans during her degree course, but since she graduated, her family has cleared these. "I am still paying my parents back and owe about £4,000," she says. "Kindly, they aren't charging interest."
She also owes her parents £2,500 for her car - again free of interest. She has no other debts or loans.
Since taking up her current job three months ago, Zoe has been house-sharing with a friend. "My £350 a month rent is fully covered by my accommodation allowance from work." She has no immediate plans to buy a place of her own.
She has had income protection cover since she graduated.
The cure: Consider investing in a buy-to-let property
To take time out to travel and then return home with her finances still intact, Zoe should go back to basics and draw up a budget to work out how much more she needs to save, says Julian Telling from independent financial adviser (IFA) Falcon.
Given her income and savings, it could even be worth considering a buy-to-let property investment while she's overseas, he adds, "so she has something to return to after her travels".
As long as Zoe's parents are generous enough not to charge interest on her loan, she should continue paying this off gradually, says Jon Willis at IFA Unity Independent Financial Planning.
But Mr Telling thinks she should clear the debt quickly so she can focus on her ambitions. "Parental loans can create a false sense of wealth as there is often little or no pressure to pay."
"Zoe has been sensible in using her mini cash ISA allowance to take advantage of tax-free growth," says Paul Byles at IFA Towry Law. She should try to continue this up to the date when she starts travelling.
But with rates liable to change, Zoe should keep a close eye on the Nationwide deal, adds Mr Telling. Although it is one of the better-paying instant access mini cash ISAs, other attractive accounts include one from the Halifax, currently paying 5 per cent.
As a matter of urgency, Zoe should enquire about her employer-sponsored stakeholder pension, says Mr Byles. This will be worth investing in for its low charges (no more than 1.5 per cent) and the usual tax relief on savings from the Government.
As a general rule, says Mr Willis, Zoe should be contributing half her age as a percentage of her salary - so at least 13.5 per cent.
As the rules stand, she is allowed to put up to 17.5 per cent of her income into a stakeholder or personal pension. From April next year, however, she will be able to contribute the equivalent of all of her annual salary, or transfer some savings into the scheme as a kickstart.
Zoe should make sure that her income protection insurance is still adequate, warns Mr Willis.
"Although the benefits are index-linked, her salary can increase at a greater rate than the policy benefits - especially during the years after graduation," he says.
As Zoe has no dependants, she has no need to consider life insurance, adds Mr Byles.
If Zoe can spare the cash and wants to try giving her finances a long-term boost with part of her monthly disposable income, she should consider contributing to an equity-based ISA, says Mr Byles.
He picks out the Merrill Lynch UK Dynamic and Schroder UK Mid 250 funds, which invest in the British stock market.
Mr Willis suggests Zoe consider Premier Asset Managers Selector Balanced. This is a "fund of funds" that channels money into a selection of other investment funds.
"This type of investment should be held for at least five years," he explains, "and could be used in the future for a deposit on a property."
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