‘We save £1,600 a month — are we doing it right?’

Our experts suggest how a sensible couple can get the best from their savings.

THE READER
Tony and Jane Brooks are diligent savers, each putting £500 a month into an Isa. They also each put £300 a month into a First Direct higher-rate savings account. This money goes towards buying a new car when one is needed. Tony says: “I opted out of the company car scheme, and as I do a lot of driving for work — about 25,000 miles a year — I regularly need to update my car.”

Tony, 44, is the commercial and development manager of a national construction company. His wife, Jane, 43, is an accountant for the NHS. They live in a five-bedroom detached house in Astley, Manchester, with their three children, Scarlett, 8, Jack, 10 and Katie, 12. Tony says their children take top priority when it comes to the future.

“We are keen to set aside money to give the kids a good start in life. They each have a Child Trust Fund, linked to the stock market. They have roughly £7,000, £8,000 and £9,000 in their accounts and we contribute £65 a month into each. Hopefully the kids will have the best part of £20,000 each by the time they reach 18. Their grandparents chip in now and again too.”

The couple’s other financial ambition is to secure their own future. “Jane doesn’t want to be working when she’s in her sixties. And I want a comfortable retirement.”

Tony and Jane earn more than £120,000 a year between them. They have been prudent with their income and paid off their mortgage ahead of schedule. The house had a purchase price of £250,000 and is now worth about £350,000. Tony says: “Strangely, it didn’t feel much of an achievement when we got the letter confirming we’d paid off the mortgage. It was a bit of an anticlimax. I suppose it was the relief.”

Having no mortgage or other debts, a sizeable chunk of the Brooks’s monthly income is ploughed into savings and investments. Tony has an index-linked endowment policy into which he has been saving for 25 years. He still has six years of payments to go, and has so far put in £27,000. “I had hoped to get back about £56,000 when I took the policy out, or at least that was the projection at the time. Yet with the economic slump, I expect to get back closer to £45,000.

“I had a financial adviser, but wasn’t happy with him, so we now have a stocks and shares Isa through Hargreaves Lansdown. It’s a Wealth 150 fund from which I selected the funds at random. We both put in £500 a month and have invested £20,000 between us. I keep an eye on all the funds and they are performing well.”

Jane and Tony have healthy workplace pensions; Tony pays in 5 per cent of his salary, with the company contributing 10 per cent, while Jane pays in 12.5 per cent and NHS England puts in 14 per cent. Tony says: “I pay in each month, but I have no idea what’s in either pot as we never check.”

Tony and Jane like to take three family holidays a year, usually two abroad and one in the UK, although this year they visited Barbados, and travelled to Devon and Cornwall.

Holidays are a must for a couple with three children, says Tony. “Most of our spare time is taken up with shuttling the kids to various activities. Jane and I run when we find the time, and I do the odd triathlon — although that’s to keep fit rather than to set any records.”

The couple acknowledge they are well placed to achieve their financial ambitions, but are keen to ensure that they do the best by themselves and their children. “We have been investing for the future, but need to feel we are making the most of what we have.”
If you are willing to share details of your investments and financial goals, and have your photograph taken, we will ask a panel of experts to provide you with tailored feedback and advice on your finances. You can email us at portfoliotherapy@thetimes.co.uk.

THE EXPERTS’ ADVICE
Dennis Hall, a chartered financial planner at Yellowtail

“At first it’s hard to see what Tony and Jane could be doing better. On second look, I don’t get a sense of an overall financial plan. They’re doing a good job of saving, but for what? What does a comfortable retirement look like?

“Pensions are a tax-efficient way of creating a retirement income, because they will get higher-rate tax relief on contributions, yet might only pay basic-rate tax when they draw an income. If they retire early they’ll need a separate fund to draw from until their various pensions start paying. Figuring out how much more to add to pensions and how much to allocate to Isas requires an understanding of how much money is needed, and by when.

“Tony selects funds randomly rather than with a specific objective in mind. If he knew he needed a certain amount by a particular date it might affect how much risk he is taking, and the type of funds he invests in.

“Once they know how much they need to invest for their own financial security, they will know how much they can allocate to their children’s savings. Junior Isas are an ideal home for these savings; with a limit of £4,080 per child they can potentially save a meaningful sum by the time the kids reach 18.”

Helen Howcroft, the managing director of Equanimity IFA
“I estimate that Tony and Jane’s net income is about £7,000 a month after pension contributions. Once the Isa contributions have been paid they have £6,000 a month to fund replacing a car and their lifestyle. As we do not have a complete budget planner we do not know how much is spent on maintaining their lifestyle, however, it could be assumed that they spend £5,000 a month. So, disregarding expenditure on children, they would need to fund about £4,000 a month during retirement to maintain their lifestyle. It is important that the Brooks’s review this assumed level of net income requirements against their projected pension benefits. On their present level of retirement savings, they are not saving sufficiently to enable Jane to retire in her mid-fifties and to maintain their lifestyle.

“I assume that Jane cannot draw the benefits of her NHS pension before the state pension age of 67. Therefore, while saving into a pension is suitable, it will not enable them to fund early retirement without paying high penalties. They should consider alternative investments. A stocks and shares Isa is appropriate because it can be cashed in at any time without penalty, though it is designed as a medium to long-term investment. The maximum that can be invested annually is increasing from £15,240 to £20,000 from April 6, 2017.”

Rachael Griffin, a financial planning expert at Old Mutual Wealth
“As the Brooks’ top priority is to provide for their children, one possibility is to use Tony’s endowment. A good option would be a discretionary trust, with the parents as trustees, so they can control how and when the children receive the money.

“Once Tony’s endowment ends, the money will stay within the created trust and can be put into an investment bond. Up to 5 per cent of the premium can be withdrawn each year without an immediate tax liability and could be used to cover education fees. Larger sums could be withdrawn tax efficiently by assigning parts of the bonds to the children in the future — assuming they are over 18 at the time.

“They should also be sure they have adequate critical-illness cover.

“The Brookses should maximise their pension contributions and make the most of the allowances for the 2016-17 tax year. Tony and Jane are higher-rate tax payers, so they will receive 40 per cent marginal rate income tax relief on their personal contributions. For personal pensions, the pension provider would claim 20 per cent income tax relief for them and the Brookses will gain the additional 20 per cent through their tax return. Any unused allowances from the previous three tax years can be carried forward to increase the amount that they can pay into their pensions.”

Tony’s response
“We found the pension advice particularly useful. We will definitely take on board the experts’ advice, which gives us plenty to consider for our future and for the kids’.”