Wealth Check: 'How can I juggle saving for a pension and buying a house?'

Aileen Mc-Greevy, 22, is employed as an architectural assistant. She lives in a rented property in Stranmillis, Belfast.

As she is coming to the end of her degree, she is keen to receive some advice about savings and pension schemes.

"I want to know when I should start saving for a pension, how much I should be saving annually, and how much I should aim to have saved by retirement," says Aileen.

Besides graduating and getting a full-time job, Aileen is also keen to get onto the property ladder and ensure that she can retire debt-free by her 60th birthday. "By the age of 26, I want to own my first house. By my early 30s I want to have moved to my permanent home, which will be a larger house suitable for a family. By the age of 50 I would ideally aim to have most, if not all, of my mortgage paid off and I want to have retired by the age of 60 with no debts," she says.

Case notes

Income: £13,000 per year
Monthly outgoings: £175 tax and National Insurance contributions, £400 living expenses
Debt: none
Savings: ISAs worth £2,000

Advice this week is given by Christopher Wicks of N-Trust, Philip Pearson of P&P Invest and Ray Prince of Rutherford Wilkinson...

Retirement

The experts agree that Aileen should begin to invest now in some form of pension scheme if she is to realistically achieve her goal of retiring at 60.

"A simple straightforward way to start saving for retirement is through the use of a stakeholder pension. It is designed to provide a low-cost way of building up a pension pot. There is no initial charge to invest, with the maximum charge capped at 1.5 per cent, per year for running the plan," says Pearson.

He recommends Aileen embrace stock market risk as, over the long term, it is likely to provide the best prospect of achieving inflation-beating growth. He says the most straightforward way for her to achieve this within a stakeholder pension is to choose a tracker – a fund that follows the performance of the UK stock market.

Once the pension has built up in value to a few thousand pounds she should then consider using alternative funds to compliment it in order to reduce risk by diversifying into different areas.

"If Aileen were to save £200 per month from now until age 55, and then leave the fund until age 60, she could expect to generate an income of £4,800 a year in today's money, after tax. If Aileen invests 5 per cent of her income now, then approximately £65 per month would be invested. If her company matches that, the amount will double," explains Prince.

However, to achieve her primary goal of retiring by the age of 60, Aileen may need to save more, according to Wicks. "The amount of money you need to save into a pension depends on a number of factors. One of the most important is the timing and likelihood of receiving any inheritance.

"If the inheritance is ignored, I have estimated, assuming a 3 per cent per annum real return (that is, excluding inflation), that you would need a fund in today's terms of around £440,000 at age 55. This would require contributions of about £689 per month gross. If you put retirement back by five years, you would need to contribute around £545 per month," he explains.

Budget

To ensure she is saving sensibly, the advisers agree that Aileen should review her expenditure and draw up a budget and make a contingency for regular monthly saving.

"If you find it difficult to understand exactly where your money goes, it is helpful to keep a diary of every penny you spend each day over the course of a month.

"A budget for regular monthly saving needs to be created with the capital from your wage at the beginning of the month before you start spending," says Pearson.

Property

Prince believes that Aileen should speak to some local estate agents to get a feel of the price-trends in her area, which will also give her the chance to learn how the local housing market operates.

"Aileen will need to see if she qualifies for a mortgage. Since the contraction in the credit markets, getting a mortgage has become more difficult. The challenge she faces is getting the deposit together. As she has no debts, the Nationwide would offer a loan of £82,000 based on an annual income of £20,000, or £102,000 based on £25,000. But she would need a 20 per cent deposit to qualify. There are lenders that will consider a smaller deposit."

He advises her to talk to a mortgage specialist.

For a free financial check-up, write to Wealth Check, The Independent, 2 Derry Street, London, W8 5HF; or email wealthcheck@independent.co.uk