‘I have finally paid off my debts – can I retire?’

This reader paid off more than £100,000 in debts and wants to know if it is now safe to retire. Lauren Almeida investigates

Running your own business can be hugely rewarding, but taking on so much personal risk can be dangerous too. Andy Brooks, a 63-year- old from Isfield, East Sussex, cannot say for certain whether running his village pub for 20 years was a mistake or not.

“Financially it was the worst thing that my wife and I could have done,” he said. “But socially it was brilliant to put our roots down in the middle of a village community.”

After a long corporate career at a major supermarket, Mr Brooks opened his pub in 2001. But the business hit difficult times in 2012 and he racked up £120,000 in credit card debts.

“We realised we needed help and we took advice from a debt charity,” he said.

By 2018 most of his debts were cleared through an individual voluntary arrangement and family help. “After that I followed financial advice and cashed in my pension with my previous employer.”

Mr Brooks took £743,000 from his pension and handed three quarters of it to Royal London, the insurer, to manage in a “drawdown” account. He used the remainder to pay off the rest of the debt and now has £23,000 in cash savings left.

“We are using this cash to supplement our income,” he said. “But we are burning through it quickly. I know that the longer I leave my pension to grow, the better chance I have to get a higher income from it when I retire. But how do I know when is the right time?”

Mr Brooks stopped working ng at his pub last year and now works rks parttime as a grocery delivery y driver, which pays him £1,000 a month. nth. He also earns £1,150 after tax from om a four- bedroom home he rents nts out in Sussex, which is worth th £525,000. The house, which h used to be Mr Brooks’ family y home, has a buy-to-let mortt gage of £220,000, which costs 1.99pc on a five-year fixed term that expires in June 2026.

“We are earning less than we spend at the moment, but we don’t mind as we think the pension pot, which is worth around £650,000, will be enough to live on by the time I turn

66. I want to keep my parttime job for a few more years too.

“We are currently renting a small cottage, which we love. But we think we will need to move in the next 10 years, as it may get harder for us to move about,” he added. “We’d like a two-bedroom house, but we are not sure whether we should buy or rent our next home.”

Mr Brooks said he was unsure how vulnerable his assets would be to inheritance tax when eventually passed down to his two sons. He is targeting an annual income of £30,000.

Henrietta Grimston

Chartered financial planner at Evelyn Partners

Mr Brooks has taken his tax-free cash from his pension and has the balance in a drawdown scheme with Royal London. Most financial advisers say a safe rate of withdrawal is 4pc a year, but this is usually based on American research. For a British investor, studies have suggested that a more conservative figure of 2.5pc should be used.

The income shortfall Mr Brooks has today, while he is still working, represents a withdrawal rate of just 0.8pc of the value of his pension, which should be comfortably sustainable. By the time he stops work he should be receiving his state pension; he should review his position again then.

With regard to their property, if Mr and Mrs Brooks were to continue renting, it would allow them the flexibility to move as and when required. However, there would always be the cost of the rent, as well as the risk of being asked to vacate the property.

There are ar some practical considerations in relation r to their buy- to-let property, as a they depend on it to supplement their income. They still have outstanding o mortgage debt and the t current term is due to end in 2026.

The T Brookses have not decided dec what to do in terms of repaying rep the capital, but it is certainly cer easier these days to secure secu mortgage debt in retirement me and there are companies that th specialise in providing advice ad in this area.

This would allow them to defer the repayment of the mortgage, giving them more time to decide on their longterm property plans and to continue receiving rental income. It would also avoid the need to take capital from the pension to repay the mortgage, which would trigger income tax on the withdrawal.

The alternative is for them to buy a new home. With limited capital at their disposal outside the pension, and with the existing mortgage debt against the Sussex property, it is likely they would need to consider selling the Sussex home. While the Sussex home was once their main property, which usually qualifies for private residence relief on capital gains tax, on the sale there would be an assessment for CGT for the proportion of time it has been rented. There would also probably be stamp duty to pay on the purchase of a new property.

Joshua Gerstler Chartered financial planner at The Orchard Practice

In relation to the house move, Mr Brooks should consider buying rather than renting. Over the long term, property has been a good investment and hopefully the value of the home will continue to rise. Mr Brooks could comfortably afford to buy a two-bedroom home outright for £250,000. On this basis, he would be able to retain the rental property in Sussex and continue to benefit from the rental income.

From an inheritance tax perspective, Mr and Mrs Brooks would benefit from the “nil-rate band” – the IHT-free allowance – of £325,000 each.

They can also use the additional “residence nil- rate band”, the family home allowance, of £ 175,000 each, which applies when property is left to direct descendants, in this case their two sons. As a couple they will have £1m of assets free from inheritance tax.

Most pensions will sit outside the estate. This means they should be excluded from any inheritance tax calculation and should be able to pass on their home to their two sons without paying any tax at all.

Overall, despite the difficulties that Mr and Mrs Brooks went through with the pub, it looks like they are in a good financial position and should eventually be able to pass on their wealth to their sons with little difficulty.

Andy Brooks ( below) and his wife, who used to run a pub, want an income of £30,000 a year