Wealth Check: No debts, big savings, early retirement: can they have it all?

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The Independent Online

The patients

Paul and Sheila Rainger want to boost their savings and clear their mortgage. The couple, aged 42 and 36 respectively, pay £930 a month for their £125,000 repayment loan with Standard Life, capped at 6.59 per cent interest. They bought their one-bed flat in north London for £235,000 five years ago; it is now worth about £300,000.

Between them they earn £85,000 a year and can afford to overpay £900 per month on their mortgage.

At present, they pay £500 a month jointly into individual savings accounts (ISAs). They have accumulated £1,000 in a Halifax cash ISA, paying 5.75 per cent, and £1,000 in a Nationwide cash ISA at 5.55 per cent. They also have £10,000 in shares.

They pay £100 a month into an Allied Dunbar with-profits endowment policy. This is worth £16,000 but is likely to fall short of the original forecast of £65,000. "We do wonder if the money would be better invested elsewhere," says Sheila.

Sheila pays 6 per cent of her salary into her company's money purchase pension scheme. Paul has a personal pension with NPI into which he has been paying £183 a month for 15 years. Recently, he also started contributing 8 per cent of his salary to his employer's money purchase plan.

The couple's long-term financial goal is to achieve security and capital growth. "We would like to have the choice to retire before state pension age, ideally in the country, using the equity from our London property," says Sheila. "But we would want a decent income from investments."

They have no protection in place apart from life insurance tacked on to the endowment policy.

The cure

The couple are fortunate in being able to choose whether to save or increase their mortgage repayments, and they can do both, agree our panel of independent financial advisers (IFAs).

Savings/investments

As higher-rate taxpayers, putting more money into tax-efficient ISAs is a sensible plan, says Colin Rotheray of IFA Throgmorton Financial Services.

As a priority, Paul and Sheila need a "rainy-day fund" of about £5,000 in cash savings accounts, stresses Ian Hudson of IFA Hudson Green & Associates.

They should stop paying into their underperforming endowment and put that £100 a month in an equity ISA instead. The endowment policy itself can be sold, but they should talk to an IFA before deciding what to do with the proceeds.

Property

The couple could make savings by remortgaging on to a lower rate of interest, alongside their regular overpayments. Tracker mortgages are a good option, says Mr Rotheray, as with the base rate around its peak, they will gain when it falls.

Keith Churchouse of IFA Churchouse Financial Planning says Paul and Sheila should aim to overpay by no more than around £300 a month and look to build up their savings.

Retirement

As they will benefit from higher-rate tax relief on pension contributions, the couple should try to up their long-term savings.

Under new rules, they can pay up to 100 per cent of their salaries into pension plans, which gives them plenty of scope to increase their contributions, adds Mr Churchouse.

Paul's personal pension should be reviewed, says Mr Rotheray, as its performance is below average.

Protection

If the couple cash in their endowment, they will lose the life cover this provides. As it is, this stands at only £65,000, which isn't enough to cover their mortgage.

They can buy £100,000 of cover over 20 years on a joint-life basis for £18.50 a month, says Mr Churchouse.

Both Paul and Sheila should check with their employers to see if they offer income protection cover.

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