Wealth Check: 'I want to retire at 60 and travel, so how should I plan my finances?'

Sheelagh Donovan would like to retire in eight years when she is 60. "I'd continue working longer if it made substantial economic sense but I'd rather not have to," she says.

Sheelagh Donovan would like to retire in eight years when she is 60. "I'd continue working longer if it made substantial economic sense but I'd rather not have to," she says.

Ms Donovan has been an information officer for Age Concern in South London since November, 2002. Before that, she spent 20 years with the Milk Marketing Board and worked for a firm offering advice on people's work-life balance. She lives in a one-bedroom flat in Sutton, Surrey, and has paid off her mortgage.

Luckily, she was in the final-salary scheme of the Milk Marketing Board and is a member of a handful of other personal and private schemes. "Is there any advantage in consolidating all my pension pots?" she asks. "Should I leave my Milk Marketing Board pension where it is? I have had a letter from trustees outlining plans to amend the scheme."

She has a NPI capital bond and would like advice after the proposal by AMP, the life insurance company, to de-merge from NPI. Much of her savings are in building society accounts. "I'd like to invest in something that will out perform building society rates but I don't want substantial risks," she says.

We asked Anna Bowes, of Chase de Vere Investments, Bob Riach, of Riach Independent Financial Advisers, Charles Ansdell, of Inter-Alliance and Roderic Rennison, of Charcol.

Case Study:
Sheelagh Donovan, information officer

Name: Sheelagh Donovan;

Age: 52;

Status: Single;

Occupation: Information officer for Age Concern;

Education: BSC in nutrition from University of Surrey;

Car: Fiat Tipo;

Salary: £25,000 ;

Property: One-bedroom flat in Sutton, Surrey;

Savings: Premium bonds; mini-cash Isa with Nationwide; Tessa about to mature; £8,000 in index-linked savings certificates; building society accounts; NPI capital bond bought 1993; Newton Pep taken out in 1993; Merrill Lynch Pep taken out in 1998;

Pension: Milk Marketing Board final-salary pension (20 years service); personal pension; five years deferred group personal pension; Age Concern money-purchase scheme;

Shares: Northern Rock and International Power;

Outgoings: (Per month) £1,100.

Solution 1: Pension

Ms Bowes says there is no problem with Ms Donovan having different sources of income in retirement . Her final-salary scheme is likely to be the most valuable of her pensions. Although the trustees of the pension have suggested there may be alterations there is no evidence these amendments wil l adversely affect her.

Mr Riach says it may be worth Ms Donovan transferring the five years of contributions into her Age Concern scheme. She should ask those trustees for a transfer value and ask Age Concern's administrators to show what additional benefits this will produce. Mr Riach recommends leaving her personal pension with the present provider, to avoid transfer fees.

Solution 2: Property

Mr Ansdell says there is little point in doing anything with her property at present since she needs somewhere to live. When she has retired, she could release the equity in her house for extra income.

Solution 3: NPI bond

Ms Bowes says with-profits bonds have been suffering for some time and NPI are among the casualties. But the problem lies with future performance as opposed to the security of her capital. It is likely her NPI bond will be in cash and fixed interest securities. This means the underlying fund may be lower-risk but it does not offer great potential for strong future performance because it will not benefit from growth in the stock market.

So while there is likely to be a penalty for cashing in the bond she may get better performance elsewhere. She must choose a company with significant financial strength such as the Prudential, Standard Life or Legal & General.

Mr Rennison says Ms Donovan should leave her NPI bond alone. AMP have withdrawn from the market because they wish to protect shareholders from further financial strain. There should be no further losses.

Solution 4: Savings

Ms Bowes says during the long bear market of the last three years Ms Donovan's investment choices have served her well. Cash has outperformed stocks and shares considerably. But that it is not the ideal investment environment for the longer term.

There are investments that have the potential to benefit from any rise in the stock market while keeping capital safe, but there are few to choose from. A guaranteed-equity bond will offer a proportion of any rise in a market index and guarantee to at least return the original investment at the end of the term if the market drops. She recommends the Portman building society Guaranteed Equity Bond or the Newcastle building society FTSE Bond 2.

Mr Ansdell says Ms Donovan should invest in a cash mini-Isa (up to £3,000 a year). She should also consider index-linked gilts which are relatively safe investments.

Mr Riach says Ms Donovan's premium bonds can be viewed as a no-risk investment, with a possible win. He has clients who invest in premium bonds for the excitement and a return above building society rates. After the rally in word stock markets she should review her Newton and Merrill Lynch Peps. These funds may have been appropriate when bought, but will not now be the best funds to take advantage of the present investment climate.

Ms Donovan should also maximise her Isa allowance by arranging a stock market-based Isa investment with a wide range of investment funds to reduce volatility. Mr Riach recommends a Skandia multi-Isa which offers a choice of more than 100 funds. She should also sell her shares because these are high-risk investments.

* If you would like to be given a financial health check-up, write to: Wealth Check, 'The Independent', 191 Marsh Wall, London E14 9RS, or e-mail cash@independent.co.uk

Independent Partners; Do you need financial advice on your investments, pension or insurance? Book a free consultation with an independent Financial Adviser at VouchedFor.co.uk

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