Wealth Check: 'When can I afford to retire comfortably?'


Christine Tucker, 59, an office accountant from Gravesend in Kent, would love to retire at 60, but knows that, based on her modest retirement savings, this is probably a pipe dream. "It would be wonderful, after 45 years of work, to please myself with my day," she says. "I have lived in my own home since I divorced 19 years ago. My partner and I live separately, there are three years to run on the mortgage, and I work full time. I know it won't be possible to retire at 60 because of my financial situation, but I want to know how and when I can give up work."

Case notes

Salary: Christine earns approximately £29,000 a year.
Monthly expenses: She pays around £560 in taxes and national insurance contributions.
Mortgage: Christine's mortgage has around three years left to run on a property worth around £275,000.
Savings: Aside from her pension, no additional savings or investments.
Pension: Christine contributes around £120/month to her occupational pension scheme and has a fund that will be worth around £57,000 by age 60.
Other debts: She has a credit card balance of around £3,000.

We asked three independent financial advisers to take a look at Christine's situation: Steve Laird of Carrington Wealth Management, Dennis Hall of Yellowtail Financial Planning, and Danny Cox of Hargreaves Lansdown...

Mortgage & spending

Because Christine is so close to retirement, the financial advisers believe she should look carefully at the retirement income she hopes for, taking into account the effect of inflation, and add as much extra cash as she can to her retirement savings pot. "Christine is currently spending around £1,700 a month, or £20,400 a year, on everyday living expenses," says Danny Cox. "That is higher than her estimated retirement income needs of £15,000 a year. This suggests her outgoings will fall – outgoings that currently include her mortgage payment.

"Christine needs to get as close to her required pension expenditure as she can, using any surplus income to repay her mortgage or credit card."

Pension

Because Christine is close to retirement, she needs to protect her pension pot from fluctuations in the value of her investments, because she doesn't have time to wait for them to recover. This means placing a greater proportion of her money in less volatile, safer vehicles, the advisers say. "She should be careful where her pension monies are invested," Cox says. "With three years to go before retirement she should be taking a conservative approach to her pension investments. I would focus on cash investments."

Work-life balance

Although Christine's hope is to retire completely and begin drawing down her pension, all three financial advisers suggested other options. "Christine knows that she can't afford to give up work completely at the age of 60, although she'd like to," Steve Laird says. "However, reducing her working hours would give her more time to do what she wants while maintaining her income.

"Assuming that she is able to persuade her employer to reduce her hours, she will, after allowing for the state pension, be a little better off. She will lose around £5,840 in pre-tax earnings and gain around £7,800 in pre-tax pension, a net after-tax benefit of some £130 per month.

"She should use this money to establish a rainy-day fund, ideally in a cash ISA, having made sure that she pays off her credit card debt before the interest-free period expires."

Waiting game

But if Christine can hold on for just a little longer, it could make a big difference to her retirement income. "Christine's current money purchase pensions could be worth £57,000 by age 60," says Cox. "That could provide a tax-free cash sum of £14,250 and a resulting pension of £1,780 per annum. This assumes 6 per cent annual growth between now and age 60 and an escalating annuity – which increases by 3 per cent a year to offset inflation.

"But if Christine can delay her retirement until she is 63, just three more years, and her contributions continue at the same level, the pensions could be worth nearly £78,000, providing a tax-free cash sum of £19,500 and a resulting retirement income of £2,600 a year.

"She can and should obtain an accurate forecast of her projected benefits from her two occupational pension schemes to find out exactly what the shortfall will be between the income she hopes for during retirement and the income that she will realistically receive."

Property

One of Christine's big payments is her mortgage, which still has three years to run, but it is also her biggest asset. "With so much wealth tied up in property, Christine should ask herself whether she really wants to be a homeowner at all," Dennis Hall says. "Too many older people are asset-rich and income-poor, and that is not a recipe for a happy retirement.

"Christine has many plans for retirement, but may lack the money to achieve them. Releasing money from her property while she is still physically and mentally able to enjoy her retirement makes sense," he adds. Downsizing may be a good choice for Christine, rather than a controversial approach like equity release, though he acknowledges that the property market is far from favourable right now. "But if Christine waits too long she may find she needs residential care. At that point, her local authority may use the value of her home to pay the bills."

For a free financial check-up, write to Wealth Check, The Independent, 191 Marsh Wall, London E14 9RS; or email 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

Arts and Entertainment
filmPoldark production team claims innocence of viewers' ab frenzy
Life and Style
Google marks the 81st anniversary of the Loch Ness Monster's most famous photograph
techIt's the 81st anniversary of THAT iconic photograph
News
Katie Hopkins makes a living out of courting controversy
people
News
General Election
Finacial products from our partners
Property search
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Guru Careers: Pricing Analyst

    £30 - 35k (DOE): Guru Careers: We are seeking a Pricing Analyst with experienc...

    Ashdown Group: Treasury Assistant - Accounts Assistant - London, Old Street

    £24000 - £26000 per annum + benefits : Ashdown Group: A highly successful, glo...

    Ashdown Group: Sales Team Leader - Wakefield, West Yorkshire

    £21000 - £24000 per annum: Ashdown Group: The Ashdown Group has been engaged b...

    Ashdown Group: Head of Client Services - City of London, Old Street

    £45000 - £50000 per annum + benefits : Ashdown Group: A highly successful, int...

    Day In a Page

    Revealed: Why Mohammed Emwazi chose the 'safe option' of fighting for Isis, rather than following his friends to al-Shabaab in Somalia

    Why Mohammed Emwazi chose Isis

    His friends were betrayed and killed by al-Shabaab
    'The solution can never be to impassively watch on while desperate people drown'
An open letter to David Cameron: Building fortress Europe has had deadly results

    Open letter to David Cameron

    Building the walls of fortress Europe has had deadly results
    Tory candidates' tweets not as 'spontaneous' as they seem - you don't say!

    You don't say!

    Tory candidates' election tweets not as 'spontaneous' as they appear
    Mubi: Netflix for people who want to stop just watching trash

    So what is Mubi?

    Netflix for people who want to stop just watching trash all the time
    The impossible job: how to follow Kevin Spacey?

    The hardest job in theatre?

    How to follow Kevin Spacey
    Armenian genocide: To continue to deny the truth of this mass human cruelty is close to a criminal lie

    Armenian genocide and the 'good Turks'

    To continue to deny the truth of this mass human cruelty is close to a criminal lie
    Lou Reed: The truth about the singer's upbringing beyond the biographers' and memoirists' myths

    'Lou needed care, but what he got was ECT'

    The truth about the singer's upbringing beyond
    Migrant boat disaster: This human tragedy has been brewing for four years and EU states can't say they were not warned

    This human tragedy has been brewing for years

    EU states can't say they were not warned
    Women's sportswear: From tackling a marathon to a jog in the park, the right kit can help

    Women's sportswear

    From tackling a marathon to a jog in the park, the right kit can help
    Hillary Clinton's outfits will be as important as her policies in her presidential bid

    Clinton's clothes

    Like it or not, her outfits will be as important as her policies
    NHS struggling to monitor the safety and efficacy of its services outsourced to private providers

    Who's monitoring the outsourced NHS services?

    A report finds that private firms are not being properly assessed for their quality of care
    Zac Goldsmith: 'I'll trigger a by-election over Heathrow'

    Zac Goldsmith: 'I'll trigger a by-election over Heathrow'

    The Tory MP said he did not want to stand again unless his party's manifesto ruled out a third runway. But he's doing so. Watch this space
    How do Greek voters feel about Syriza's backtracking on its anti-austerity pledge?

    How do Greeks feel about Syriza?

    Five voters from different backgrounds tell us what they expect from Syriza's charismatic leader Alexis Tsipras
    From Iraq to Libya and Syria: The wars that come back to haunt us

    The wars that come back to haunt us

    David Cameron should not escape blame for his role in conflicts that are still raging, argues Patrick Cockburn
    Sam Baker and Lauren Laverne: Too busy to surf? Head to The Pool

    Too busy to surf? Head to The Pool

    A new website is trying to declutter the internet to help busy women. Holly Williams meets the founders