Jane Beattie, a retired medical secretary and holiday rep, lives off her state pension, dividends from shares she has inherited and earnings from work as a professional minute-taker. That comes to something under £11,000 a year — about £6,000 in state pension, £3,000 in pay and £1,500 in dividends, plus a few hundred pounds in savings interest. She says it is not enough.
“I don’t have children or dependants, so I want to make the most of my money and enjoy myself. I’d like to free up £10,000 upfront for home improvements, including a new fireplace, carpets and bathroom fittings, and a trip to America to visit my niece. And maybe a handbag.
“Then to secure a higher regular income so I don’t have to be so careful with my spending. I like going out and I love to travel — last year I went to Turkey, Jordan and Greece and this year I’m planning to go to France and Spain. I’m not a spendthrift, though; I don’t buy designer clothes,” she says.
Jane’s partner, John, an accountant, died five years ago. She says: “He managed our finances and I now feel a bit lost. I’ve been to advisers in the City before, but I didn’t understand them and they frightened the life out of me. It’s also very difficult to know if you’re going to get good advice and value.”
The 72-year-old keeps busy with volunteering, church activities and socialising, besides her work, but she has recently suffered health problems, which prompted her to make a new will and commission lasting powers of attorney so that she is properly looked after if her health deteriorates.
Advertisement
She owns her home, a listed early-Victorian two-bedrooom maisonette in west London worth £750,000 to £800,00. She bought it for £240,000 in 1982 and is mortgage-free. She loves the property and has no intention of moving. She did look at equity release but didn’t like the idea of somebody else effectively owning her home.
Her share portfolio is worth about £46,600. Her parents bought the shares many years ago and she inherited them when her mother died in 2006. She holds a portfolio of ten stocks, including one investment trust, Witan. Her largest holding is 3,328 shares in Marks & Spencer and her other holdings include Barclays, Legal & General, Unilever and Mitchells & Butlers.
She hasn’t bought or sold any shares, but she has recently started to take an interest in their performance. She also has more than £50,000 in savings: £4,000 in a Halifax Isa, £5,000 in the popular three-year NS&I 65+ Guaranteed Growth Bonds, maturing in 2018, and £44,000 in a Barclays account that was previously with ING Direct, paying 1.05 per cent. She has another day- to-day savings account, which her dividends are paid into and and which she regularly dips into.
Her only debt is £1,000 on a credit card, which she intends to clear soon.
While Jane wants to enjoy her money, she realises that she needs to plan for a long retirement. “I need to keep enough money to look after myself, and I don’t want to end up in a care home. We’re a long-lived family, so I could easily live another 10 to 15 years.”
Advertisement
Her principal concerns are what to do with her share portfolio and savings, bearing in mind her goals of freeing up a lump sum and boosting her income. She also wants to know what provision she should be making for older age, and how to improve her position generally.
She says: “I’m overloaded with M&S shares. Otherwise I think it’s a pretty diversified portfolio, but I would like the experts’ opinion. Should I buy or sell any shares, and should I be looking at any other types of investments?”
THE EXPERTS’ ADVICE
Consider a mortgage
Martin Bamford, a chartered financial planner and managing director of Informed Choice
Jane finds herself in a familiar position to many her age, with an inherited portfolio of blue-chip company shares and most of her wealth tied up in her home. Her desire to stay there is fantastic, but her quality of life should come first. A lifetime mortgage secured against the property would not need to be repaid until she died or moved permanently into residential care. The mortgage comes with a no negative equity guarantee and would continue to belong to her.
Advertisement
In the short term, Jane should consider selling her shares and raising £40,000. Jane takes little active interest in this portfolio and the money could be spent on the home repairs and trip to America, with the balance left in a cash savings account as rainy day money.
As Jane wants to avoid moving into a residential care home, she needs to think ahead to the type of domiciliary care she would want.
Most of Jane’s wealth is tied up in her home, so she would qualify for assistance from her local authority when she needs care (once her savings are spent), because homes are not included in means testing. However, Jane might not want to rely on local authority funded care and to choose her own carers.
The Make money work harder
James Horniman, a James Hambro & Partners portfolio manager
I have huge admiration for Jane still working at 72 and being so active, but I worry about her finances. Her £1,000 credit card bill suggests she may be beginning to live beyond her available income. She faces some difficult decisions and would really benefit from talking to a well-respected and trustworthy financial planner.
Advertisement
She can make some of her savings work harder. Some two-year fixed-rate deals pay more than 2 per cent at the moment. Her equity portfolio includes some very good stocks, but it is quite concentrated. It is worth considering what is called a fund of funds — one with a focus on income that might generate nearer 4 per cent a year.
The difficult decision, though, is can she downsize to release some capital? Moving to a £400,000 property could triple how much she has to live on and allow her to really enjoy life.
Move shares into an Isa
Danny Cox, the head of financial planning at Hargreaves Lansdown
The share portfolio she has is producing a pretty yield and so changes here are unlikely to produce hugely increased income benefits. To make these easier to manage, Jane should move them on to an investment platform nominee service and move them into an Isa wrapper, sheltering £15,240 in this tax year and next. Isas are exempt from capital gains tax whereas her portfolio is taxable.
The process to move shares into Isas is called Bed & Isa and is straightforward and, with some investment services, is free. A Bed & Isa creates the potential for capital gains tax. However, as long as this is less than the capital gains tax allowance, £11,100 for 2015-16, there will be no tax to pay.
Advertisement
Jane should shop around for a better interest rate on her Barclays account formerly with ING Direct. She should also pay off the credit card before further interest becomes payable.
There are three basic ways Jane can increase her income using her property, downsizing being the most obvious. However, she does not want to move. Under the Rent a Room Scheme, letting a furnished room in her home could, from April, yield as much as £7,500 a year tax-free. If this is unsuitable, Jane should reconsider equity release. There are a number of ways in which Jane could release some of the value of her home and the most suitable would seem to be a drawdown scheme. This is a type of lifetime mortgage where Jane borrows against the value of her home, the interest is added to the loan and it is cleared when she dies.
Jane’s reaction
I’m grateful for the experts’ advice and will look into several of the suggestions in detail. I don’t totally understand the lifetime mortgage option, but it’s interesting. I will think seriously about funds, and about using Isas to save on future capital gains tax. I’m still not willing to downsize, because I’m keen to stay in Westminster; my friends and life are here, we have low council tax and good services. I could barely afford a studio for £400,000.
If you are willing to share details of your present situation, investments and financial goals, and to be photographed, we will ask a panel of experts to provide tailored feedback and advice on your finances. Email portfoliotherapy@thetimes.co.uk if you would like to take part.