Wealth Check: I'm debt free – help me speed to retirement
Jeremy has spent years getting back into the black. Now he has set his sights on a decent income in old age. Kate Hughes finds out if he can make it
Sunday 04 October 2009
Jeremy Wicks, 43, from High Wycombe, Buckinghamshire, is working hard to make up for his misspent youth. The site manager for an ice cream producer puts all his available cash towards repaying the £17,000 in credit card bills that he stacked up as a younger man.
He has been living within his means for a number of years, but Jeremy is concerned about his financial future and wants to know how to build an adequate retirement fund.
"I no longer have any credit cards – preferring to use only what cash I have on hand these days," said Jeremy. "But my savings are nonexistent thanks to my debt. I finally finish paying it off in March 2010, and can then start saving, so I really need to know what my best options are for a future of financial security."
Jeremy has no savings or investments and although he is contributing to his company pension scheme, he doesn't know whether it will be enough to provide him with the £15,000 a year he hopes for in retirement.
"My financial situation is simple. I have the sort of job that lots of people would love – making ice cream and helping support the motor racing team our company sponsors," Jeremy said. "I've been there 17 years so my income is stable."
"That means I should be able to build up my savings over time as soon as my debt is cleared. I just don't know where to put the money!"
Our panel of independent financial advisers are impressed that Jeremy has worked hard to claw himself out of a financial black hole.
"Jeremy deserves much praise for the way he has turned his finances around, having gone from financial incapability and spiralling credit card debt to a high level of financial capability where he is well in control of his money and expenditure," said Robin Keyte of independent financial adviser (IFA) Towers of Taunton.
"It is important that once the loan is repaid, Jeremy maintains that savings discipline and continues to set aside sizeable monthly amounts," Mr Keyte said.
Creating a detailed monthly budget, and putting his spare cash into his savings and pension pot should help him build up a strong position for the future. Unlike many British workers, Jeremy may not need to worry about having enough to live on in retirement.
Jeremy currently puts £358 a month into paying off his loan. Once that has been cleared, he should set up regular monthly saving via direct debit to create an emergency fund.
"A contingency fund worth around three times his net monthly income will be sufficient to provide breathing space should an unexpected expense suddenly occur," suggests Philip Pearson of P&P Invest. "A cash Individual Savings Account (ISA) would be an ideal choice because it provides a low-risk home for savings with the added benefit of tax-free returns. Up to £3,600 could be allocated in the current financial year rising to £5,200 in the new financial year for 2010 to 2011 which begins just as Jeremy's debt is cleared."
Although rates change frequently, the most competitive are currently from Standard Life Bank at 2.65 per cent, or the Manchester Building Society at 3.01 per cent on its 35-day notice ISA account.
Once he has topped up his cash ISA, Jeremy could look at an equity investment ISA for medium-term savings.
"This should provide the opportunity of a higher return than cash over the medium to longer term, when selecting fixed interest and equity funds such as unit trusts, OEICs [open ended investment companies] or investment trusts," said Mr Pearson.
Savers can invest up to £7,200 in an ISA this tax year, and £10,200 next year. Savers can either put up to the full allowance into a "stocks and shares" ISA, or put up to half into cash and the remaining half into equities.
"I recommend the Skandia ISA which provides access to over 900 individual funds with potentially no initial set-up charges," Mr Pearson said.
Jeremy hopes for a retirement income of £15,000 a year at today's values from the age of 65. With inflation, by the time he retires, he will need around £16,377. But he shouldn't think about his pension savings in isolation, the advisers warn. He owns a small flat in Luton which is worth £50,000 with no mortgage, which he hopes to sell next year. Meanwhile, he contributes 5 per cent of his salary to his company pension scheme.
"Many people hope to use the proceeds from property sales to fund their retirement, and Jeremy should consider what proportion, if any, of his property assets will be ring-fenced for funding retirement," said Stephen Smith, of Davison Smith Financial Management. "An essential starting point when considering saving for retirement is to ascertain what your current pensions are likely to produce in the future."
Jeremy's should have full entitlement to the basic state pension, currently worth £4,953 a year, and around £4,537 from the state second pension, both of which will rise in line with inflation during his retirement. Meanwhile, Jeremy's previous job with the BBC should entitle him to payouts from the corporation's final salary pension scheme worth around £2,575 a year.
"That leaves an annual income shortfall of £4,312," said Mr Keyte. "Jeremy has saved enough with his employer's money purchase pension scheme to receive around £1,829 in today's terms, but if he carries on until 65 it will be worth another £1,791 in today's money. He needs another £692 per annum in today's terms, which means saving a further £26,859 by the age of 65.
"Overall, I estimate Jeremy will need to add another £55.36 a month to his pension pot, and with over £350 a month freed up in just a few months, this is more than possible."
"Jeremy needs to review with his employer the sick pay that will be provided in the event of long-term illness," said Mr Pearson. If this is insufficient then he could look at additional protection through permanent health insurance, which will provide income should something happen. The premium could be particularly cost-effective if Jeremy could afford to take a policy which deferred payment for up to six months."
For protection against unemployment and illness or disability, Jeremy should consider an income protection policy which would pay out a monthly income until he reaches 65 if necessary.
Do you need a financial makeover?
Write to Julian Knight at the Independent on Sunday, 2 Derry Street, London W8 5HF email@example.com
Independent Partners; request a free guide on NISAs from Hargreaves Lansdown
- 1 Thailand deaths: Pair's bloodied bodies found naked on Koh Tao beach
- 2 Scottish independence: Ireland since 1919 is a lesson for Scotland in what a Yes vote means
- 4 John Travolta addresses former pilot's gay romance allegations publicly for the first time
Daniele Watts: Django Unchained actress detained by Los Angeles police after being mistaken for a prostitute
The political class is doing what Hitler couldn’t – destroying Britain
Scottish independence: Nationalist leader Jim Sillars threatens pro-union companies with 'day of reckoning' after independence
Scottish independence: Yes campaign feels the heat as Alex Salmond's NHS claims come under furious attack
Portuguese academic says British are 'filthy, violent and drunk'
£23m Birmingham cycle scheme is attacked by Tory councillor for not catering to the elderly
iJobs Money & Business
£20 - 24k (Uncapped Commission - £35k Year 1 OTE): Guru Careers: We are seekin...
£20 - 24k + Benefits: Guru Careers: This is a great opportunity for an enthusi...
£280 - £320 per day: Ashdown Group: The Ashdown Group have been engaged by a l...
£400 - £450 Per Day: Clearwater People Solutions Ltd: **URGENT CONTRACT ROLE**...
Day In a Page
A first-floor flat with two bedrooms, a spacious reception room and communal grounds in a leafy part of London
A three-bedroom flat with a spacious rootop terrace and balcony, accessed from a private gated courtyard
A Grade II-listed pile with six bedrooms, stables and 39 acres of grounds in Standlake
A two-bedroom flat with boutique hotel-style interiors, close to the foodie haunt of West End Lane
A two-bedroom flat in a beautiful old vicarage, with many original features, close to the city centre
A three-bedroom 16th-century home with an aga kitchen, private gardens and heated outdoor pool, in Hadleigh
A three-bedrom home in sought-after Queen's Gate Mews, with Italian marble-finished bathrooms
Surrounded by glorious countryside in the village of Udimore, sits this impressive four-kiln oast and barn conversion
A five-bedroom house in the picturesque village of Kettlewell, north Yorkshire
An 18th-century former coaching inn with original staircase, open fireplaces and beams throughout
A Grade II-listed Georgian town house with three bedrooms and a south-facing courtyard, near Arundel Castle
Feel on top of the world at this über chic penthouse on the 37th floor of one of Europe’s tallest blocks.
A Grade II-listed Victorian villa with six bedrooms and two further cottages, all with spectacular sea views
A grade II-listed, Georgian cottage with mature 50ft garden, perfect for summer entertaining
A magnificent Georgian pile with turrets, seven bedrooms, a heated pool and four acres of gardens
Fairoak Farm has five bedroom suites, gym, outdoor swimming pool and golf course
Chic two-bedroom river-fronted flat with a private lift that delivers you directly to your home
A spectacular seven-bedroom Tudor pile, once owned by Henry VIII, with 18 acres of land
A seven-bedroom Georgian property previously used as a picturesque wedding venue
A split-level flat in a church conversion with two en suite bedrooms and 1,200sq ft of living space
A three-bedroom bungalow situated behind an impressive stone wall, £645,000
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
Chapel House is a former vicarage with nine bedrooms in the beautiful Upper Wye Valley
A five-bedroom B&B and separate owner's accomodation with potential for conversion
Enjoy summer by the Thames in this two double-bedroom converted warehouse in Rotherhithe village
A one-bedroom, luxury apartment with private gym and concierge service in Moorgate
A four-bedroom house in Hermitage Gardens with three reception rooms and landscaped gardens
A seven-bedroom Grade II-listed property with a separate self-contained apartment
A five-bedroom Victorian house with three reception rooms and galleried landing, £695,000
A six-bedroom farmhouse with five acres of land in a former cloth-making village
A secluded seven-bedroom detached house with large private garden, £490,000
A three-bedroom cottage overlooking Sarratt village green with open fires and solid oak floors
A three-bedroom maisonette flat in a Grade I-listed, Georgian townhouse in a sought-after location
A one-bedroom apartment located within a private gated development, north of Turnham Green
Look forward to a brighter future at two-bedroom Sunny Cottages, ideal for Londoners looking to downsize
A three-bedroom red-brick cottage with outbuildings and pretty gardens, £200,000
This three-bedroom flat within a former textile factory spans the corner of the fourth floor and has a balcony