Can I afford to have itchy feet?

Vital statistics

Susan McLaren
Age 52
Lives in Kirkcaldy
Occupation Bilingual support teacher
Earns ?28,000
Mortgage ?22,500 endowment
Debts One year's interest-free credit
Investments Isa, deposit account
Pensions State pension and teacher's pension
Aims To decide whether to pay off her mortgage and travel

Susan McLaren wants to travel. She has already spent a year on exchange in Australia but teaching took up so much of her time that she could not be a tourist: 'There was no time for holidays so I would love to go to Australia and not have to teach. I met a lot of Canadians there who said I ought to go to Canada.'

She has not thought much about her finances before but realises she will have to plan carefully to achieve her aim. 'You can sometimes take a career break - a year or two off work without pay - and I wondered about doing that,' she says.

Some days she wants to stay in Scotland: 'Part of me likes the safety of the job and being secure and I enjoy teaching.' On others she is tempted by the risk: 'Sometimes I think you just have to go for it. I had a hard time bringing up the family. I am lucky now and more and more think that life is short.'

Susan has been teaching English as an additional language since 1979 but is worried about her pension. 'If I retire at 60, I will have done 29 years and my pension forecast estimates a lump sum of £22,800 and £7,600 a year,' she says. She bought her flat in 1986 with an endowment mortgage which matures in 2011, three years after she retires. She has been told that the endowment will repay the loan, but her main decision is whether or not to keep it.

She has £17,000 in a Tesco savings account and the mortgage is £22,500: 'I wonder if I should pay off some of the mortgage or whether to leave it as it is only costing £117 a month plus £29 a month for the endowment policy.'

She is not expecting any large expenses. She says: 'I recently bought a nine-month-old car for cash and shouldn't need to replace it for a while. My recent acquisition, and only debt, was to buy two leather settees costing £2,900, which I am paying off over a year, interest-free.'

She recently switched her bank account with Royal Bank of Scotland to Halifax where she keeps £1,300 for emergencies. She is putting aside another £200 a month into the Tesco account. Earlier this year, she took £3,000 out of her Tesco account to open a Halifax cash Isa and wishes she had done it last year too 'The year before I had bought a stocks and shares maxi-Isa with Scottish Widows European Fund.'

Adviser 1: Neil Wright

Susan is paying 6.24% interest for the mortgage but receiving considerably less from her savings. It looks like the mortgage should go. However, it is not that simple. Susan may be able to increase her savings rate and reduce the mortgage interest to tip the equation, although it involves taking risk with equity investments.

Paying off the mortgage releases £117 a month, gives peace of mind and flexibility. Not doing so maintains a large lump sum to invest elsewhere.

Susan should consider switching the endowment to an alternative investment such as equity Isas, largely for tax reasons. She may get a good price for the endowment second hand.

Having £1,300 in a current account is too high. She should periodically sweep surplus cash into a savings account. Maintaining £1,000 for emergencies is too low - not even one month's take-home pay; it should be three.

Cash is a stable and liquid investment but £17,000 is more than she needs, unless she is serious about going abroad again. Susan could channel at least some of her surplus income into a mini-equity Isa and an internet-, post- or telephone-based account.

The teachers' pension scheme is an excellent one and it may be worth making additional voluntary contributions or buying added years to increase the benefits.

• Neil Wright is director of financial planning at PriceWaterhouseCoopers


Adviser 2: Julie Lord

If Susan had to retire through ill health, she would get a teacher's pension enhanced by six and two-third years and an ill-health pension of £10,150 a year. If she thinks she could live on this, she need not worry about protection. I suspect this is unlikely, and strenuously recommend income protection, deferring the benefit for 12 months as her employer probably pays for six months full-time and six months part-time salary. I suggest she takes out critical illness cover at the very least to pay off her mortgage.

It is not fun to contemplate mortgage payments after retirement but, if she saves £200 a month, she should have enough to pay it off at 60 without using the endowment policy, which in 2011 can provide post-retirement income. She may be able to claim that the endowment was mis-sold, as it was due to mature after retirement age.

She should repay some of the mortgage rather than keeping most of her money in a cash account because mortgage rates are higher than savings rates. But it is sensible to keep the home loan if she invests in equity-related investments until retirement because she may earn more than she pays out.

She probably has too much in cash. I suggest switching £3,000 from Tesco into a mini stocks and shares Isa and putting £200 a month in an equity-based unit trust for flexibility and potential growth.

• Julie Lord is managing director of Cavendish Financial Management in Cardiff.

Advice is for guidance only

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