Wealth Check: 'I want to halve the amount of time I work – and enjoy life more'

Sarah Canet, 38, from London, returned to the UK from Australia with a debt of £20,000 five years ago. Since then she has paid off her loans, built up £100,000 in savings, cleared the mortgage on her flat and built up a restaurant PR company. After working hard for her money, she's now keen to get her money working for her, while she enjoys life a little more.

"I work too hard," Sarah says. "I want to shut up shop for a while and create a better work-life balance. I'd like to be able to work hard for six months of the year, earn around £30,000, then take six months off to develop new projects, read, travel and study."

CASE NOTES: Sarah Canet, 38, PR, London
Income: after staff and other expenses, Sarah brings home £30,000 of her £100,000 income.
Monthly outgoings: she spends around £1,000 a month on food, travel, clothes and socialising, as well as council tax, utility bills and service charges.
Savings & investments: Sarah's investments include £100,000 in a Sainsbury's instant access account, £1,500 in a Barclays current account and £3,000 in a Barclays ISA.
Debts: £0
Mortgage: £0
Pension: £0

Three advisers help Sarah with her goals this week: Aj Somal of Positive Solutions, Danny Cox of Hargreaves Lansdown, and Keith Churchouse of Churchouse Financial Planning.

Investments

Sarah thinks she can earn around £30,000 for six months' work, maintaining her current annual income. Aj Somal says she should consider investments which will also give her an income, but make the most of her tax-free savings allowances first. "Sarah should divert £3,600 from the existing £100,000 into a cash ISA this tax year and put up to £3,600 into a stocks and shares ISA," he suggests.

"She should then put £15,000 into an NS&I index-linked savings certificates. This is a deposit-based investment paying an interest rate in excess of inflation over a five-year term, and is free of income tax and capital gains tax."

He believes Sarah should put £67,800 in an equity-based unit trust or Oeic, which should increase her capital and give her an income, and then the last £10,000 should be put aside in a cash account as an easy-access emergency fund.

But Keith Churchouse suggests that because of her six-month plan, Sarah should consider a larger emergency fund of at least £15,000. "Sarah may want to consider putting £30,000 into premium bonds," he says. "Her capital will then be protected and she has the opportunity of tax-free winnings. Once she has established her working routine, she could reduce this amount, and make the money work for her elsewhere."

He adds that savings accounts offering over 6 per cent interest, such as Chelsea Building Society's 90 day notice account at 6.30 per cent, are common.

Pension

Sarah's investment situation is promising, but the advisers are concerned about her lack of pension provision. They urge her to start saving regularly. "A contribution of £250 a month would become £312.50 with tax relief," says Cox. "If this was invested until Sarah was 65, it could produce a fund of £315,000 which could produce a pension of £14,500 per annum, around £7,325 in today's money.

"But if Sarah were to boost her pension by making a lump sum contribution of £8,000 – worth £10,000 after tax relief – her fund could be £362,000 at age 65, producing an income of £16,697 per annum worth £8,429 per annum in today's terms." He recommends using a self invested personal pension (Sipp).

Churchouse suggests Sarah considers upping that to a total of £15,000, to make the most of the long-term accumulation, but says Sarah should not rule out a stakeholder pension product through a company such as Scottish Widows.

Protection

"Sarah should consider protecting her income against long-term sickness or absence," says Somal. "This can be achieved by taking out an income protection policy to cover a proportion of her monthly earnings – usually around 60 to 70 per cent – which would pay out after a period of absence from work."

To find an independent financial adviser in your area, visit www.unbiased.co.uk

For a free financial check-up, write to Wealth Check, 'The Independent', 191 Marsh Wall, London E14 9RS, or e-mail cash@independent.co.uk

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