Wealth Check: 'My dream is to retire at 45 on £100k'

Nathan's hopes for his retirement are based on both businesses taking off. He would like to retire at 45 on a pension of £100,000 a year.

He is aware that his rent (£300 a month) could be going towards a mortgage. His total monthly outgoings, including rent, bills, food and debt repayments, equal £875. He has no savings.

We asked three independent financial advisers for help: Ben Yearsley of Hargreaves Lansdown, Ashley Clark of needanadviser. com and Andrew Merricks of Skerritt Consultants.

Case notes

Nathan Peterson, 28, Edinburgh

Personal: Nathan is managing director of his own events company in Edinburgh.
Income: £500 a week.
Monthly outgoings: £1,125 on general living expenses, travel and repayment of loans.
Debt: £14,600, including £10,000 consolidation loan, £2,500 Prince's Trust loan and £2,100 Bank of Scotland overdraft (defaulted).
Savings: None.

DEBT

Nathan should double his loan repayments, to reduce the time it takes to clear the debt and save money in interest, says Ashley Clark.

Ben Yearsley advises Nathan to focus on the defaulted overdraft, which could jeopardise his future borrowing potential.

INSURANCE

Sickness or not being able to work could be disastrous for him, says Clark. He recommends that Nathan establishes an income protection plan, which would replace his pay if he was sick. With Liverpool Victoria, he would get £1,000 a month of cover after six months off work, for a premium of £10.58 a month. Norwich Union offers a combined life insurance and critical illness 25-year policy for £27.03 a month.

PENSION

To achieve his target retirement fund of £100,000 a year, Nathan needs a fund of around £2m, says Clark. To achieve this by the age of 60, he says, Nathan would need to save around £950 a month. Starting a pension with the contributions that Nathan had felt to be adequate (£50 a month) will not get anywhere near that target, says Andrew Merricks - a reality check is in order.

PROPERTY

Merricks warns Nathan against putting all his eggs in the property basket. A balance between cash, property, bonds and equities provides the safest and most consistent return over time, he says, and the stock market has provided better returns over the past three years.

Clark also points out that profits on any properties are subject to capital gains tax. The profits after deducting this year's tax-free gains allowance of £8,800 are subject to tax of up to 40 per cent.

Clark recommends that Nathan saves a deposit of around 30 per cent on each property and suggests a "buy to let" mortgage with the Scottish Building Society at 5.3 per cent in the first three years.

Clark adds that a self-invested personal pension (Sipp) is ideal for Nathan because it accommodates his desire to own property and have a large retirement fund, with the added bonus of reducing corporation tax for his business.

He can't buy residential property within a Sipp, but his firm could make virtually unlimited contributions to his pension fund up to the new annual allowance of £200,000. If the firm is in profit, excess profits can be channelled into the pension fund, so reducing the corporation tax bill.

Clark recommends a low-cost mainstream plan - annual charges are just 0.6 per cent at Legal & General, say. When he is ready to purchase commercial property, he should switch to more adaptable property Sipp managers, such as Merchant Investors or Central Tax and Trustee Planning. Nathan's pension fund could then lease back the property to his company. This would mean rent was paid back to his pension rather than to another landlord, Clark says.