Money makeover: “We want to retire by the time we’re 60 and to help our son buy a home in the future”

12 October 2017

Chris and Liz Welton aim to retire early and to set aside cash to help their 18-year-old through university and beyond.

Chris and Liz Welton live in Knowle in the West Midlands, with their 18-year-old son Steven who is travelling on his gap year and has a place to study at university in September 2018.

Chris, 52, is an assistant principal of a primary school, while Liz, 57, is an assistant director of procurement for the local council.

The couple are mortgage free and Liz has a 25% share in her family’s buy-to-let property portfolio in Langport, Somerset. This generates an income of £16,000 a year before tax.

Chris has two defined benefit (workplace) pensions. One is projected to be worth £14,100 a year from age 65 plus a lump sum of £42,300. It includes a spouse’s pension of £7,000 a year. The other is projected to be worth £6,900 a year from age 65 plus a lump sum of £29,400.

It includes a spouse’s pension of £2,600 a year.

Meanwhile, Liz has one defi ned benefi t pension, which is estimated to pay £29,600 a year from age 65, plus a lump sum of £54,600. It includes an annual spouse’s pension of £12,700. Alongside this, Liz has a linked Additional Voluntary Contribution (AVC) pension, which has a current value of £12,540.

In addition, the couple have the following savings and investments:

  • £150,000 split between two Cash Isas
  • £25,000 in a Stocks and Shares Isa
  • £5,000 in a direct share portfolio

The couple’s financial goal is for them both to retire when they reach the age of 60. They’re also keen to support their son through university, and would like to help him buy a property in the future.


This is where Martin Dodd (pictured above), an independent financial adviser (IFA) and director of Midlands Investment Agency in Wolverhampton is here to help. Martin spent the early part of his career working as paraplanner before becoming a fi nancial planner 15 years ago. Midlands Investment Agency specialises in offering both pre- and post-retirement planning services, covering pensions, wealth management, and inheritance tax planning. Martin’s advice for Chris and Liz is as follows:

Beware pension early withdrawal penalties

Chris and Liz’s goal is for them both to retire when they reach the age of 60. But they need to be careful about early retirement penalties attached to their workplace pensions.

Liz’s council pension applies the so-called ‘85-year rule’, which reduces pension benefi ts if you take them before the age of 65. However, the exception to this is if at age 60 you have at least 25 years’ service with the company. Liz does, so she can access the pension from age 60 penalty-free.

Chris’ West Midlands pension, which is projected to be worth £14,100 a year from age 65, does allow him to take his pension penalty free from age 60. But his Teachers’ Pension, which is worth £6,900 a year from age 65, levies early withdrawal penalties.

There are two elements to the Teachers’ Pension, one of which has a retirement age of 65 and the other at age 67. Both elements must be taken at the same time. If either element is taken early, a 23% penalty applies to the pot with the retirement age of 65 and a 29% penalty applies to the pot with the retirement age of 67.

Chris says: “The early withdrawal penalties are unlikely to change my retirement goals. I just need to decide whether to take my Teachers’ Pension at 60 and put up with the 23% to 29% reduction or whether to leave it until I’m 65 or 67 and rely on my other pension and sources of income in the meantime.”

Move some cash savings into stocks and shares

It is important to retain an emergency reserve fund to provide the couple with cash in the event of any unforeseen circumstances. The amount to hold in an immediately accessible savings account varies from person to person. I recommend holding between three and six months’ expenditure in an account which you can access quickly.

The couple has £150,000 invested in two separate Cash Isa accounts, earning 1.75% and 1.05%, respectively.

I recommend that a proportion is used for this ‘rainy day fund’, while the rest should be transferred into a new Stocks & Shares Isa for each of the couple.

The Isa allowance is very generous at £20,000 for the current tax year. Isas are also flexible products in terms of topping up, switching funds and making withdrawals. Plus, they’ve long been a good way to invest because you pay no income tax or capital gains tax on returns generated, and you can access your money whenever you wish, although the tax benefits are lost for ever when you withdraw your cash.

By transferring their Cash Isas to Stocks & Shares Isas, Chris and Liz can benefit from a wide range of funds to invest in and can control the risk through one of our actively managed portfolios.

I have reviewed the couple’s attitude to risk and volatility through a risk-profile questionnaire. I have assessed Liz as a ‘moderate’ investor and Chris as a ‘moderate conservative’ investor.

I therefore recommend they consider the Old Mutual Wealth ‘moderate’ and ‘moderate conservative’ portfolios, which offer competitive terms and prices for the couple’s requirements and have track records that I am satisfied with – although investments can go down as well as up and past performance is no guarantee of future returns.

The holdings in the ‘moderate’ portfolio are predominantly equity-backed investments (company shares) both in the UK and overseas in a broad selection of stocks. The remainder of the portfolio is typically made up of fixed-interest holdings, cash, and property-linked investments.

Meanwhile, the holdings in the ‘moderate conservative’ portfolio are cash deposits, fixed-interest holdings, property and equity funds mainly in the UK, but with some international holdings on occasions.

Moneywise says: The ‘moderate’ portfolio includes the following Moneywise First 50 Funds: CF Woodford Equity Income (7%), Man GLG Continental European Growth (5%), and Vanguard LifeStrategy 20% Equity (5%).

The ‘moderate conservative’ portfolio includes investments in the following Moneywise First 50 Funds: Man GLG Contintenal European Growth (5%), and Vanguard LifeStrategy 20% Equity (8%).

For our advice and implementation, I would charge 1.3% of the money being invested, which amounts to £1,950 based on an investment value of £150,000. The ongoing advice fee for the recommended Old Mutual Wealth Investment is 1% of the fund value, which based on a fund value of £150,000 would amount to £1,500 a year.

I’d recommend leaving the £25,000 in the couple’s existing Stocks and Shares Isa until they decide whether to transfer cash into a new Stocks and Shares Isa, at which point they can consolidate their portfolio. Their current Stocks and Shares Isa has performed positively to date, with the two funds it invests in producing returns averaging 9% (Threadneedle Navigator UK Index Tracker) and 5.3% a year (Threadneedle Navigator Income) over the past five years.

Chris says he’d like to keep his direct share portfolio, which includes Aviva, British Telecom, Lloyds Bank, and Santander, as he enjoys managing it.

Chris comments: “I understand the idea behind moving most of our cash savings into investments, as I agree that keeping a lot of money in cash isn’t a good idea as savings rates are well below inflation.

“But I have a vision that the stock market is at its highest now and, with Brexit coming up, I’m worried it could fall.

“Plus, despite Martin thinking the performance of our current Stocks and Shares Isa is strong, I’m very disappointed with the return. I also know I need to invest for at least five years, which is a long time to keep our money locked away.

“I’m thinking of using the money to buy a flat and rent it out, and then giving the property to my son to live in later down the line. Martin doesn’t think this is a good idea due to the buy-to-let tax changes that have come in, meaning it’s not so profitable, and because it’s a lot of work to become a landlord. But I’d be minded to hire a letting agent to sort this side of it out, and it’s definitely something I will look into in more detail.”

Set up Lasting Power of Attorneys

The couple may wish to consider putting a Lasting Power of Attorney (LPA) in place, so that another individual would have the legal authority to look after specific aspects of their financial affairs or health and welfare should they lose the capacity to do so.

Chris and Liz already have wills in place, and I haven’t recommended any insurance products for the couple, as they are debt free, they both have death-in-service life cover through their pensions, and their son is now an adult.

On the overall Money Makeover experience, Chris says: “Martin was extremely professional and had decent ideas, but it’s timing that’s an issue for me as to what to do.

“My problem is that I’ve got £150,000 in cash, which is great and I appreciate that many people would love to have this, but interest rates on cash are pitiful, I’m loathe to put it into the stock market due to Brexit concerns, and it would appear that buy to let isn’t much of a goer any more.

“I think it’s better to wait and see if there’s a correction in the stock market in the next six to 12 months and to take it from there.”


Key recommendations for Chris and Liz:

  • Beware early redemption penalties on pensions
  • Move some cash savings into stocks and shares
  • Retain a rainy-day fund
  • Set up Lasting Power of Attorneys
  • Lift your financial game by getting a Money Makeover

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