Eve Dolman, 26, moved to London from York two years ago and now works as a marketing manager. Although she is already a landlord, with few unmanageable debts and some savings, she has great expectations for her financial future, including retiring with an income of £50,000 a year in today's money. But Eve is finding it difficult to work out what she will have to do now to ensure her plans long-term, and is keen to learn whether her high-risk attitude to investment will reap rewards.
Our panel of independent financial advisers, Ian Hudson of Hudson Green & Associates, Dane Halling of Arcturus Investments and Alan Dick of Forty Two Financial Planning, provide their recommendations.
Eve Dolman, 26, marketing manager, London
Monthly spending: £2,195
Debt: £12,000 student loan
Pension: £200 per month, including employer contributions
Dick is concerned that Eve's retirement goals are unattainable, and warns that she could run out of money by her mid-seventies, which, with life expectancy now in the mid-eighties, could be disastrous. By the time she retires at 65, Eve's desired income will have risen from £50,000 to £160,722, adjusting for inflation. To reach this goal, Eve would need to amass an investment portfolio of around £3.2m, assuming she could achieve an income of 5 per cent from her savings. "She is probably on target for around two-thirds of her goal," Dick says, "but the cost of bridging the gap is unachievable." Eve would have a better chance of reaching her goals if she reduced her target retirement income to around £33,000, he advises.
Hudson also suggests she reconsider her needs: "Eve may not need this level of retirement income. It is unlikely that she will have a mortgage, nor will she still be saving for a pension, and she will not have the same wealth-growing ambitions. In retirement, disposable income is likely to be greater and her pension income will stretch much further than the disposable income from her salary."
Buy to Let
Eve already owns a property worth around £150,000 in York, which she rents out. She wants to expand her property portfolio, but with the state of the housing market in the balance, the panel is negative about buy-to-let investments. Eve is lucky to be achieving a gross capital return of around 6 or 7 per cent a year on an initial investment of £112,000, says Dick. "Many BTL investors are losing money on a monthly basis and are bargaining on capital growth to bail them out in the future," he says. If Eve decides to sell at the end of her mortgage deal and locks in the profit she has made, she should be wary of changes to capital gains tax, he adds.
Halling suggests that Eve watches the market to see what deals emerge as interest rates ease. He adds: "What is now clear is that the landscape has changed considerably since the summer and it is unlikely that we will see those sorts of offers again for some time."
Eve has cash accounts worth £1,925 in five different places earning around 3 per cent interest annually, and all three advisers believe that she should consolidate a number of these into a mini cash Isa with a rate of around 6 per cent. "Eve should limit her cash accounts to two that she regularly contributes to," says Hudson. "This will free up time to grow her investments."
But Eve also has a maxi Isa worth £9,000 with Fidelity, and with her significant appetite for risk, Halling believes the choice of funds is critical. "A basket of well-managed funds with consistent, long-term performance is essential," he says. "Avoid flavour-of-the-year funds and be wary of excessive emerging markets risk."
Meanwhile, Eve should look very seriously at critical illness and income protection insurance, the advisers suggest, as her biggest financial risk is loss of earnings.
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