Anthony Frazer is only 25 but he is already planning his retirement. "I would like to retire in my late fifties with a lump sum of £200,000 to £400,000 and a monthly rental income," he says, Anthony wants to start building his nest egg now by either buying property or making investments.
Three financial advisers give Anthony their advice: Bryn Jones of Skerritts, Darius McDermott of Chelsea Financial Services and Andy Oliver of Siddalls Spain SL.
CASE NOTES: Anthony Frazer, 25, trainee accountant, Spain
Income: Anthony earns around £28,000 a year.
Monthly outgoings: he spends £500 on rent, £350 on car and petrol, £200 on food and another £200 go towards his savings. The rest of his cash is spent on socialising and holidays.
Savings and investments: Anthony has £5,000 in the bank and £1,000 in an ISA.
Debt: he has an £8,000 graduate loan.
Debts & cash
Darius McDermott believes Anthony is making a common mistake: trying to tick every box on the secure financial future checklist too early in life. "He wants to increase his pension and start an investment portfolio, have a cash position, repay a loan and maybe buy a property with little provision for this within his income," says McDermott. "Anthony should focus on attainable goals and not run the risk of spreading his income too thinly."
Paying off his graduate loan and building up a cash fund should be Anthony's top priority. The interest rate on the graduate loan is almost certainly higher than the interest rate on the £5,000 in savings, so the advisers suggest that Anthony uses £4,000 from his savings to cut his graduate loan in half (keeping £1,000 in reserve). The £200 being put into the savings account every month should instead be used to pay off the loan and then to build up a cash fund worth about three or four months' salary.
"Once the cash buffer has been established, he can then think about increasing his pension and start an investment portfolio," says McDermott. Andy Oliver recommended the cash should be kept in a in a high-interest bearing account in a Spanish bank.
Our advisers also point out a few things Anthony should keep in mind because he lives in Spain.
Oliver recommends that Anthony draft a will to avoid Spain's inheritance laws, where the state decides who receives the assets if beneficiaries have not been named in a will.
He also warns that getting started on the property ladder in Spain is very different to the UK. "Most banks in Spain require at least a 20 per cent deposit," he warns. "The associated purchase costs are around an extra 10 per cent of the purchase price, meaning that a purchase of €250,000 will mean a deposit of €50,000 plus a further €25,000 in fees."
Returning to the UK
Anthony said he might want to return to the UK eventually, and there are ways to ease that transition. "I think Anthony should pay a fixed amount of his earnings into a bank account each month rather than investing if he is unable to access a UK personal pension plan from Spain," says Jones. "As he does not yet own a property the money he saves could act as a deposit for a home in the UK or elsewhere.
"Alternatively, he could use the funds to make a one-off deposit into a UK pension plan to make up for lost ground whilst he has been working abroad."
But Oliver says Anthony should take advantage of a Spanish pension plan as long as he is in the country. "Unlike in the UK, annuities in Spain are taxed at an extremely low rate, meaning that Spanish personal pensions are much more tax efficient than their British counterparts."
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