Wealth Check: 'Can we afford our foreign sabbatical?'

Each week we give 'Independent on Sunday' readers a financial makeover

The problem

"We want to cover the expense of going abroad with Voluntary Service Overseas (VSO) and have enough to pay the mortgage and other outgoings while we're away," says Andrew Clark. "We also want to carry on supporting two of our children, who will be at university until 2009."

Andrew and his wife, Mary, are planning to take a two-year VSO sabbatical when Mary retires in three years' time. After this, Andrew, who is now 54, will probably return to work in the UK and continue until he is 65.

Their Norwich home is worth £250,000 with an outstanding £77,000 NatWest mortgage running until 2015. The repayments cost £390 a month, discounted at 1.83 per cent below the lender's base rate until August 2005.

The mortgage includes £25,000 on a repayment basis, covered by a Norwich Union "decreasing" term protection policy. The remaining £52,000 is interest-only, covered by an AXA endowment that costs £107 each month but has a projected £10,000 shortfall.

As for investments, some £12,000 worth of endowments that matured last December lie in a NatWest Savings Direct account earning 3.2 per cent.

The Clarks also have two endowments due to mature in December 2006, projected to be worth £10,000 each. They know they may have to use this to cover the mortgage shortfall but would prefer not to.

Both put £100 a month into NatWest mini cash individual savings accounts (ISAs) paying 4 per cent interest. Andrew has so far invested £3,000, and Mary £2,000. They have also been putting £100 per month in a Prudential Savings 10-year bond (global growth) since 1999; at the last valuation, the £4,800 invested had turned into just £4,900. But they are more anxious about the Credit Suisse European fund in which they placed a £2,500 windfall five years ago: the last valuation showed it had more than halved to £1,100.

For retirement, Andrew puts 6 per cent of his salary into the teachers' superannuation fund and 9 per cent into a Prudential teachers' with-profits additional voluntary contribution (AVC) fund, currently worth some £34,000.

Mary has a Prudential with-profits AVC fund, worth £7,000, in which she puts £60 a month.

Neither Mary nor Andrew is keen on much exposure to shares but both express a preference for ethical investments.

Interview by Sam Dunn

The patients

Mary, 57, and Andrew Clark, 54, from Norwich.

Jobs: Mary is a part-time health visitor; Andrew is a primary school headmaster.

Income: Mary earns £22,000 a year, Andrew £46,000.

Savings: £100 a month each into mini cash ISAs; £12,000 in a savings account.

Investments: £100 a month into a Prudential Savings 10-year bond; £2,500 lump sum in a Credit Suisse European fund; two endowments projected to be worth £10,000 each.

Goal: to take a two-year sabbatical with VSO.

The cure

"The sum needed to support their VSO work, mortgage, children's education and their own travel is likely to be more than £20,000 - which they do not have at their immediate disposal," says Darius McDermott, managing director of independent financial adviser (IFA) Chelsea Financial Services. The money could be found by releasing equity from their home or from greater investment, he adds.

Savings

Their NatWest account is "not one of the top payers", says Nick Breton at IFA The MarketPlace at Bradford & Bingley. Better rates include ING Direct's 4.5 per cent. Mr McDermott suggests Egg's 4.75 per cent if the Clarks are happy with an internet account. He also proposes a different mini cash ISA: Intelligent Finance offers 4.6 and M&S 4.5 per cent.

Investments

Philippa Gee, investments director at IFA Torquil Clark, recommends persevering with the Prudential bond but urges contact with Credit Suisse for an update since, according to her calculations, this investment shouldn't have lost so much money. She suggests the couple consider putting money into a mini cash ISA instead or, if they are happy with some stock market exposure, into the Artemis Multi-manager Ethical fund.

For ethical investment, Mr McDermott recommends Isis Stewardship Income fund.

Protection

The mortgage is well protected and the Norwich Union plan "very competitive", says Kevin Carr, senior adviser at IFA Lifesearch. He recommends Andrew consider income protection. For £2,000-a-month benefit, paid until 60 years of age and deferred for 12 months, this would cost £65.76 a month with Liverpool Victoria. Mr Breton and Mr McDermott suggest the Clarks consider critical illness cover, too, as they are still supporting children. But this is unlikely to be cheap, given their age.

Mortgage

Mr Breton is concerned about how the mortgage will be covered during the sabbatical. He suggests the Clarks use some of their savings to overpay and cut the size of the loan. If they rent out, they must inform their lender.

Mr McDermott suggests they talk to a mortgage adviser and remortgage to help fund the sabbatical. Provided the couple are not tied to NatWest with hefty penalties, he suggests switching to a lower fixed rate such as Chelsea building society's two-year deal of 4.64 per cent.

Retirement

Mr Breton says Andrew is taking the best course for his pension provision but suggests Mary increase her contribution to more than the current 3 per cent of her salary.