‘I’m single and have no kids. Do I have enough to retire?’

Being diagnosed with a heart condition came as a wake-up call to James Orr, write Ruby Hinchliffe and Lauren Shirreff

When James Orr, 53, was diagnosed with a heart condition last year, it came as a wake-up call. He realised he wanted to go travelling and enjoy his life while his health allowed it. So his plan now is to retire at 55 and travel to every European capital.

Orr isn’t married, has no children and has paid off the mortgage on his house in Bradford, which has more than doubled in value, from £70,000 in 2003 to £180,000 today.

He has also saved £30,000, which sits in a cash Isa, and has deposited £ 20,000 into three different selfinvested personal pensions (Sipps).

Orr’s money worries are two-fold. He wants to know what he should do with his cash savings before he retires.

In an ideal world, he would like to protect his £30,000 from inflation – while also avoiding the “roller-coaster ride” he says he has experienced with investment returns.

As to his property, Orr wonders whether equity release is the right option for him and whether he can draw down from the equity in his house regularly or in one lump sum.

Having worked as a supply teacher for the past decade and earning an average income of about £ 15,000 a year, Orr does not have access to a teachers’ pension fund.

But he does have a workplace pension to pay £ 8,000 a year from his previous job as a school careers adviser.

He says: “I want to retire on about £ 17,000 a year. I’m hoping to visit every capital city in Europe.

“I don’t know how long I’ll live, so taking a lump sum might let me do this more easily.

“Another big concern is tax relief. Should I try to cash in everything, and where should I keep my money while waiting to retire?”

James Orr, 53, wants to retire in two years on about £17,000 a year and visit every capital city in Europe

Securing a comfortable retirement is a complex endeavour, and it’s crucial to break down the process into manageable steps. One of the primary concerns we need to address is the requirement for a £17,000 annual income in just two years. To achieve this, Mr Orr must have sufficient capital in place.

Mr Orr’s retirement journey can be divided into two distinct phases: from 55 to 60 and from 60 to 67. From 55 to 60, the goal is to retire, and he’ll likely have no significant income in this period, resulting in a £17,000 income shortfall.

From 60 to 67, he may have access to a “defined benefit” scheme providing £8,000 of guaranteed income, leaving a £ 9,000 gap. At 67, he’ll receive his state pension adding £10,900 a year to his income, which will meet his needs. To bolster Mr Orr’s retirement savings, he can look to make use of tax efficient pension contributions while he remains employed. This will provide him with valuable tax relief.

Next, let’s address Mr Orr’s goal of achieving growth in excess of inflation through a savings account. Historically, cash has failed to keep pace with inflation. To achieve real growth, you should consider investing in a portfolio of assets with appropriate risk control.

He must determine whether retiring at 55 is paramount or if achieving a £17,000 retirement income takes precedence. Extending his career for a few extra years could provide the boost needed to attain his income goals.

Assuming he devises a plan to accumulate adequate funds within his Sipp to sustain him until 67, he must consider the methods to provide his income. A traditional annuity purchase method will not provide his desired income based upon the capital he currently has. He may wish to consider the higher- risk “flexible access” approach, allowing him to satisfy your higher income needs earlier on.

This approach allows Mr Orr to draw his pension with tax efficiency, tailored to his income requirements. Under this plan, 25pc of his pension is tax- free, while the remaining 75pc is taxable at his marginal rate. He’ll have the flexibility to adjust his income as needed, transitioning from a 75/25 split to drawing solely from his tax-free portion when his income changes at age 60 and 67.

Mr Orr’s retirement objectives are achievable, but they require careful planning. With a well- structured strategy, you can work towards securing a comfortable retirement.

David Forsdyke Partner at Knight Frank Finance

When Mr Orr reaches 55, he will need to wait another five years before his private pension kicks in and a further seven before he reaches his state pension age of 67. Assuming he qualifies for the full state pension, he is on track to achieve more than the £17,000-a-year he wants when he reaches age 67.

However, he has 14 years between now and then. So, Mr Orr needs a much more significant nest egg to give him £17,000 of income each year between the age of 55 and 67. He only has £20,000 in Sipps and £30,000 in savings. It might be that he needs to work for longer and save up much more to achieve his objectives.

At 55, equity release won’t provide the answer for Mr Orr. When he reaches that age, he could take out a lifetime mortgage, the most common form of equity release, with a drawdown facility. The minimum initial lump sum is £ 10,000 and he could make further funds of up to £6,000 available in a facility he can draw from when he needs it.

This is less than he wants in the first year of retirement, let alone the following 11 years. In addition, this would immediately erode the equity in his property, which might serve him much better in the future, so this is not good advice. Alternatively, he could take out a lifetime mortgage that gives a single lump sum of around £40,000. This might feel like a significant sum as it gives him the funds he wants for over two years, but again this is not going to cover the shortfall in the following 10 years and will carve an even bigger hole in his overall finances for the future. So again, this is not the right advice.

Mr Orr should use his savings and investments first before thinking about borrowing against his home. This is because the interest charged on a lifetime mortgage – or any kind of borrowing – is likely to be much higher than the return he might get on savings or investments. So his overall position would worsen.

Equity release might be something he can turn to in the future, as the amount available increases as you get older. If he can delay this for as long as possible, he will be able to access a larger lump sum or drawdown facility. However, given his financial circumstances, this should be a last resort.