Wealth Check: 'Can I retire, buy a bigger house and go travelling?'

We give 'Independent on Sunday' readers a financial makeover
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The problem

The problem

Fred Dukeson is wondering whether he can achieve three goals: move home, retire early from work on a sound pension and go travelling.

Since taking redundancy in 2001, and claiming his pension entitlement from his company scheme, the 54-year-old has been working on a temporary basis as an insurance broker. The contract ends this December.

The small pension he receives from his former job amounts to £5,000 a year, but he also pays £100 a month into a pension scheme with his current employer. He is aware that this will grow into only a small fund.

Fred also wants to move to a bigger property with more space and room to park.

He has a £38,000 mortgage on his two-bedroom cottage in Worcestershire - an interest-only loan from Bristol & West building society at a standard variable rate of 6.29 per cent - and an endowment policy with the insurance company Aegon.

This ends in 2007; he thinks the policy is projected to be worth between £25,000 and £40,000 on maturity, but remains unsure of the precise amount.

His savings are substantial: he has £100,000 in the bank. This is made up of £52,000 in a Cahoot instant access account paying 5.1 per cent interest; £44,000 across three building society long-term bond accounts; and £4,500 in a Prudential equity individual savings account (ISA), whose performance has been disappointing.

However, requests for financial assistance from his two children - both in their mid- to late twenties - are eating into these reserves.

Although Fred wants to be sure of having enough money to retire comfortably, he also hopes to be able to go travelling once he has stopped working.

To protect himself in case of sickness, he has critical illness cover with Scottish Provident.

Interview by Esther Shaw

The patient

Fred Dukeson, 54, from Bromsgrove, Worcestershire.

Job: insurance broker.

Income: £19,500.

Savings: £52,000 in an instant access savings account; £44,000 in three building society bond accounts.

Investments: £4,500 in an equity ISA.

Goal: to buy a better home, give up work and go travelling.

The cure

With his savings and his pension, Fred's goals of buying a larger property and travelling in retirement are achievable, says Matt Pitcher at independent financial adviser (IFA) Towry Law. The key is finding the right balance. "It may be time to sit down with his children and explain that he needs his money to work for him, and that they need to start making their own plans."

Ben Yearsley of IFA Hargreaves Lansdown is less optimistic. A larger mortgage would dent Fred's capital and limit the savings available for travel. For now, it's likely he'll have to carry on working to fund his retirement ambitions.

Property

Fred should speak to Aegon about his endowment policy, says Mr Pitcher. "With only two years to go to maturity, he should get a more accurate idea of what to expect."

Armed with this information, Alex Pegley of IFA Calculis suggests that Fred then thinks about cashing in the endowment to pay off the mortgage or reinvest for income elsewhere.

He recommends repaying the mortgage immediately - as long as there is no penalty for doing so early. "To be better off keeping the mortgage, the gross interest rate on his £100,000 savings would have to be 7.86 per cent," he says.

Since Fred is paying a higher mortgage interest rate than the return on his (taxed) savings, he is losing out, says Mr Pegley.

Mr Pitcher urges him not to set his sights too high when buying a new property with help from his savings. Otherwise, he risks being left with little in the way of capital to spend on travelling.

Retirement

It is important for Fred to continue paying into a pension, says Mr Pitcher.

If he can afford to, he should also consider increasing his contributions - and see if the company will match them, adds Mr Pegley.

And if Fred is prepared to work that bit longer, the better the chance of a larger pension pot building up to fund longer holidays in retirement.

He should also get a forecast for his state pension by completing a BR19 form on the pension service website at www.dwp.gov.uk. In this way, he can find out if he needs to make a top-up to his national insurance contributions to ensure he receives a full state pension at 65.

Savings

Fred could make his £100,000 savings work harder for him, says Mr Yearsley.

He recommends the AA's telephone-based account, currently paying 5.26 per cent gross, while Mr Pegley suggests Alliance & Leicester's online saver, paying 5.35 per cent.

Fred should also make sure he uses his maximum annual £3,000 mini cash ISA allowance, getting the best rate of interest possible. Alliance & Leicester is paying 5.4 per cent, while Abbey's postal ISA currently offers 5.35 per cent.

Investments

Stock market volatility and poor fund management are the probable reasons behind the disappointing performance of the Prudential ISA, says Mr Pitcher. Fred should move his money into an equity income fund such as Invesco Perpetual Income, recommends Mr Yearsley.

Protection

Fred could consider cancelling the critical illness policy to free up additional cash for pension contributions, says Mr Pegley.

"Considering his net assets and the age of his children, this cover is unlikely to prove necessary," he explains.

If you would like a financial makeover, write to Sam Dunn at The Independent on Sunday, Independent House, 191 Marsh Wall, London E14 9RS, or email s.dunn@independent.co.uk

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