They plan to sell their £600,000 home in north Wales to downsize, clearing their mortgage (they still owe £230,000 and currently pay £1,350 a month). “It would be good to keep the house if possible, but it’s a large expense and tricky to maintain,” Mr Edwards says.
Mr and Ms Edwards originally met in the army, and as such both have military pensions. Mr Edwards already draws £10,500 a year from his, but it will not be index-linked until he reaches 57. His current job pays him a salary of £57,000. Ms Edwards will not be drawing from hers until she is 57. Her photography business pays her £3,300 a month.
Mr Edwards is also a member of the civil service pension scheme, to which he contributes about 3pc of his salary. Sarah pays £1,000 a month into a private pension with Aviva, she also pays £200 a month into a director’s pension for her business.
In addition they have a rental property that gives them £300 income a month. It has an interest only mortgage with £67,000 outstanding. From this they put £50-100 in their children’s Isas each month. In total they currently have £19,000 in cash savings.
They have about a decade to get the cash together to live their dream – are they being realistic?
Felix Milton, chartered financial planner at Philip J Milton & Company, says:
Mr and Ms Edwards wish to be able to purchase a yacht and have an early retirement with an income of £48,000-£60,000 per year to travel the world whilst they are still able. The old way they will be able to achieve this is by selling some of their property, as the majority of their wealth is held here, with a much lower amount in defined contribution pensions.
In terms of their pension provision, they should look at changing the way they are saving into these to maximise their assets.
Mr Edwards’s military pension will be taxed at his highest rate of income tax and this means they will both start to lose their child benefit as Mr Edwards’s total income will be over the threshold of £60,000 it begins to taper.
As Mr Edwards is a higher rate taxpayer and Sarah is a basic rate taxpayer, pension saving is more valuable to them both in his name as he benefits from 40pc tax relief on his pension contributions whereas Ms Edwards only will benefit from 20pc tax relief.
It would be wise for them to fund Mr Edwards’s existing defined contribution pension with the £1,000 per month they currently put into Ms Edwards’s pension.
