Wealth Check: 'I want to get my affairs in order before I retire'

Kathryn Wright, 59, from South Shields, is looking forward to retiring from her job as a schoolteacher by the end of the year. But first she's keen to get her money matters in order. "I'd really like a last look at my money before I retire," Kathryn says. "I'd like to be able to cover my monthly expenditure comfortably when I stop working. And I want to make sure that the investments we have built up are safe, but accessible."

Three advisers help Kathryn this week: Ian Hudson, of Hudson Green & Associates, Danny Cox, of Hargreaves Lansdown, and Ajmer Somal, of Positive Solutions.

Pension

The advisers commend Kathryn's decision to review her finances as she approaches retirement, but she has plenty to do to ensure a smooth transition. Kathryn's pension is a final salary scheme, but she took 16 years off work to raise her two children, which will impact on the level of benefits she receives.

"Kathryn should contact her pension scheme administrators for a pension statement forecast," says Somal. "Likewise, she should get a state pension forecast [available at www.thepensionservice.gov.uk]. That way she can budget ahead to make sure her retirement income covers her costs."

The Teachers Pension website, at www.teacherspension.co.uk, will also provide information on her occupational scheme and she should expect to receive a benefit statement in the post shortly, adds Cox. "Kathryn may have the option to take a bigger cash sum and have a reduced pension, but, with a final salary pension, extra cash means giving up extra guaranteed, inflation-proofed pension," he warns. "She needs to think carefully about that decision."

Investments

Kathryn's high risk investments are out of step with her attitude to securing her money, the advisers warn. "The value of Kathryn's shares will go up and down," says Cox. "That is not a risk that someone seeking modest returns without high risk should be taking."

"Kathryn should implement a low-risk strategy," suggests Hudson. "Her share portfolio of £25,000 should really be weighted more towards cash and OEICs than direct holdings in equities."

Given her 16-year career break, the advisers expect Kathryn's retirement income to fall short of covering her expenditure, and Hudson suggests that if she chose to take her retirement plan lump sum it could be invested to provide her with a further income through her retirement.

"Kathryn should consider cashing in her shares," says Cox, "but she will have to be careful about tax and charges if she does. If she can spread the sales over two tax years, and use two lots of her £9,600 capital gains tax (CGT) allowance, Kathryn may be able to avoid paying any CGT."

Somal suggests transferring her shares into an insurance investment bond. "The insurance company would meet the transfer costs," he says, "and the capital could then be invested in low-risk funds, such as cash funds."

Savings

Kathryn should also check that her existing ISA savings of £7,500 are earning her the best possible level of interest. "A quick look at the market shows that Icesave currently offers a rate of 6.10 per cent, which will accept transfers in," notes Hudson. "She should also make the most of this year's ISA allowance of £3,600 if she has not yet done so."

Meanwhile, though the advisers are pleased that Kathryn has a will, she could go further. "Kathryn and her husband should consider Lasting Powers of Attorney," says Cox. "A will ensures your estate is distributed as you wish when you die, but an LPA also protects you by authorising somebody of your choosing to deal with your financial affairs while you are alive if you are unable to do so."

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Case notes

Kathryn Wright, 59, teacher from South Shields

Income: Kathryn's pro rata income is between £30,000 and £35,000 a year.

Monthly spending: She spends around £750 a month after taxes on bills, food and general living costs

Pension: Kathryn has a final salary pension scheme, which, in addition to her basic state pension, the advisers have estimated will be worth around £6,012 every year in retirement.

Savings: She has £25,000 in a portfolio of shares, and a cash ISA worth £7,500

Mortgage: £0

Debt: £0

For a free financial check-up, write to Wealth Check, 'The Independent', 191 Marsh Wall, London E14 9RS, or e-mail cash@independent.co.uk