Wealth Check: 'We could retire in 2010 with pensions, so when should we buy a retirement house?'

One might have thought being a sergeant in the RAF would give Davydd Perrett authority in his home life. But his wife, Tracey, is one too. Mr Perrett, 32, is an RAF personnel administrator at the Ministry of Defence in London. Mrs Perrett, 34, is a flight operations manager in RAF Benson, Oxfordshire.

"Since we're both ser-geants, it means I can't pull rank at home, although I have tried occasionally," Mr Perrett says. The couple met when they were posted to Goose Bay in Canada in 1997. Two years later they married. Both are studying for Open University degrees, Mr Perrett in social sciences and Mrs Perrett in psychology. The fees are £33 a month each although they get a £350 reimbursment from the RAF for each academic year.

The Armed Forces rents them living quarters in London for £227 a month, including council tax and water. "We're very happy there," Mr Perrett says. Mrs Perrett lives on her base in Oxfordshire when she is on shift. The couple are saving for a house and want to know when and where to buy. Mr Perrett says: "If we bought now we'd probably have to let the property."

They have £3,600 in an M&G Isa, £300 in an M&G Pep and £1,600 in an instant-access savings account. Their only debt at present is a £6,200 car loan.

The Perretts are in the Armed Forces pension scheme. Unless promoted, they would retire in 2018, and the earliest they could leave with an immediate pension would be 2010. Mr Perrett has life insurance with Abbey National, and Mrs Perrett wants to know if should continue her health insurance with Allied Dunbar.

We asked Gillian Cardy, of Professional Partnerships, Anna Bowes, of Chase De Vere and Ailsa Brown of Gilliland Neilson Brown.

CASE STUDY - DAVYDD AND TRACEY PERRETT, ROYAL AIR FORCE

Name: Davydd Perrett, 32 and Tracey Perrett, 34;

Occupation: Mr Perrett is an RAF personnel administrator; Mrs Perrett is an RAF flight operations manager;

Education: Mr Perrett is studying for a BSc in social sciences with politics, Mrs Perrett for a BSc in psychology;

Motoring: BMW Mini One (2002); Vespa T5 (1998);

Debts: £6,200 car loan;

Salary: Mr Perrett £27,600; Mrs Perrett £25,875;

Property: Living in married quarters;

Savings: Instant access account £1,600; M&G Isa £3,600; M&G Pep £300;

Pension: Both in the Armed Forces pension scheme;

Shares: Northern Rock and International Power;

Outgoings: (per month) study fees £66; gym £62; mobiles £80; fixed-line £20; gas £20; electric £20; TV licence £10; petrol £55; car loan £296; life and health insurance £40; rent £227.

Solution 1: Isa

Ms Cardy says the point of monthly contributions to any savings policy is that the regular drip-feed of capital into markets evens out highs and lows of stock market volatility.

Assuming the Perretts are happy with equity investments and the idea that at any time they may have a fund worth less than what they have contributed, they should continue to drip-feed money in to the market as it is falling, because their contribution buys more units at lower prices. When the markets rise, the units bought at the lower price will grow at a proportionately greater rate. This avoids the risk of making bad timing decisions.

There is no reason why they should not continue to save in this way. They should review the funds in which they are invested to make sure they are broadly based, not volatile and have a reasonable expectation of future performance.

Ms Bowes says as they have only an M&G Isa and Pep, they should diversify their investments. Not only is it advisable for them to invest into a different company but they should also invest in a different asset class. For example, if their present investment is in a corporate bond fund, they should consider investing into a global equity fund, such as Fidelity Wealthbuilder.

Solution 2: Property

Ms Cardy says a common mistake for people in the Perretts' position is to buy an investment property they would want to live in rather than one which is a good investment and easily let.

They must seek advice from letting agents about what would make a decent investment property. They should also assume a letting agent will manage the property because their military duties will make it difficult for them to be on hand.

They should assume that the property will be sold when they leave the RAF. Then they can then use the proceeds to buy a property they want to live in. Ms Bowes says if they can build a substantial deposit, of perhaps 5 to 10 per cent of the price of the property, they will be offered a greater choice of mortgage deals.

The interest-free loan available from the RAF would come in handy and allow them to move more quickly, and, judging by their income and outgoings, they should be able comfortably to pay off 10 per cent of the debt each month. If they want to settle in the South-east, they should try to get on to the property market now. Property prices in the area have soared and although it may be slowing, there is no evidence it is falling.

Ms Brown says there are many lenders happy to consider applications for mortgages at attractive rates of interest from people who want to let their property. But they must make sure the rental income will cover the mortgage interest and capital repayments, with enough to cover a letting agent's fee. They will also need to cover times when they may not have a tenant as well as repairs and cleaning between rentals.

Solution 3: Health insurance

Ms Bowes says Ms Perrett's critical illness policy could be useful because it offers something different from their life assurance policies. It would pay a lump sum on the diagnosis of a critical illness, which can be retained even if she was to recover fully. But they should review the market to see if they can find a similar policy for a lower premium. If they take out a new policy, they must not cancel the original policy before the new one is in operation.

Ms Cardy says they should check Mrs Perrett's health insurance policy and work out the circumstances in which the lump sum would be paid. They also need to assess what exactly would be payable from the RAF in the event of long-term disability or critical illnesses and establish how they would maintain their standard of living. A decent policy should cover any shortfall.

Given the similarity in their incomes she expects they would both need some form of additional protection. Also, in light of their relatively low outgoings they should be applying as much of their spare capital to long-term post-RAF provision now, while they are relatively well off.

Ms Brown is not sure what the purpose of Mrs Perrett's Allied Dunbar health insurance policy is. She has no dependents other than her husband so has no real need for a lump sum. Also, a pension would be payable to her from the Armed Forces in the event of serious ill health.

* If you would like a financial health check-up, write to: Wealth Check, 'The Independent', 191 Marsh Wall, London E14 9RS, or cash@independent.co.uk