Ask the experts - your questions answered - October 2006

After that time you will be free to repay without penalty although there will an administration charge. If you have a long period before the ERCs expire then it may be worth considering how much the redemption charge will be as compared to the cost of making further payments.

Generally the ERC is a percentage of the loan though and is not cost effective it just depends on your own preference or what plans you have for the property. Halifax will be able to give you a redemption statement.

Peter O'Donovan, Head of Mortgages, Bestinvest (Consultants) Ltd

3. I've got around £330k coming from an inheritance very shortly. would you be able to recommend two types of investment portfolios to maximise the income i can create from it, but also provide some potential for growth please? i'm hoping to achieve around £15k - £18k gross a year... one portfolio of a high risk nature, the other low risk please. Rachel, Swindon

Answer:If you don't want to take risks with your inheritance, a gross income of £18,000 equates to a yield of less than 5.5%, which can be achieved by keeping your inheritance in savings accounts – even some variable rate accounts are paying in excess of 6%.

If you haven't done so, you could invest some in a cash ISA – you can invest up to £3,600 each tax year. The best cash ISAs are paying over 6%. Depending on how much tax you pay, you might also want to consider National Savings Certificates.

These are tax free and you can invest up to £15,000 in each issue; however, they do have to be held for a fixed period of time. The rates on the fixed rate savings certificates are not particularly competitive at the moment therefore I wouldn't recommend investing just now.

Rates on the index-linked certificates are more attractive because your investment increases in line with the Retail Prices Index (RPI), plus guaranteed interest on top of this meaning your savings keep their real value against inflation plus earn a little bit extra.

Current issues are paying RPI + 1.00% if inflation is a concern to you these could be attractive, particularly if you are a higher rate taxpayer.

Looking at a higher risk portfolio; there is insufficient information for me to make any recommendations; for example, your age, investment goals, attitude to risk, ethical considerations, tax position, etc.

In addition, I would not recommend anyone attempt to put together an investment portfolio of equities and other assets, unless they really understand the investments they are investing in.

And just as savings accounts need to be reviewed regularly to check that you are getting the best rates available, other investments require regular reviewing to ensure the asset mix is appropriate for your needs and objectives and also to weed out any that are underperforming in their sector.

With such a large sum to invest my advice would be for you to get advice from a good independent financial adviser (IFA). A good place to start is IFA Promotion website www.unbiased.co.uk, which will give you a list of IFAs in your area.

But don't just go to the first one on the list, shop around, visit their offices, ask questions – good IFAs normally offer a free exploratory meeting that allows you to get a feel for them and identify if you feel comfortable with them – if you don't feel comfortable, walk away.

Donna Bradshaw, IFA, IFG Group Plc

4. I'm 39 years old and i'd like to retire at 55. I've currently got around £55k in two personal pensions, which i recognise isn't a great deal. i earn £45k a year and was wondering how much you'd recommend i should be putting away now, and what sort of pension pot i'll need at 55 to be able to generate an income of around £18k a year (in today's terms) which i think will be enough for me to live fairly comfortably (by 55 i should have paid off my mortgage). Will, Glasgow

Answer: The amount which need to support your standard of living in retirement depends not only on your pensions but any other assets which you will have available such as savings or the proceeds from downsizing your house or business sale.

Strictly to determine how much provision you now need to make we should take all of these into account. We also need to make sensible assumptions regarding the rate of return to be used, inflation, increases in your earnings etc.

The best way to properly work out your requirements and any shortfalls is to carry out a cash flow model. That is beyond the scope of this article. However based on the details given by you it is possible to have a reasonable stab at a funding rate to provide the income which you require.

Based on the current single life RPI linked annuity rate for a 65 year old, you would need a fund of just under £530,000. Assuming a real rate of return of 3% (i.e. after inflation) your current funds can be expected to produce a fund of just over £88,000 (£139700 if you do not strip out the effects of inflation).

You therefore have a shortfall of just under £440,000. In order to make up this shortfall you would need to contribute about £1787 per month equivalent to just over 47% of your earnings.

This is highly unlikely to be practical. To improve the accuracy of the figures you should take into account other assets as detailed above. Otherwise your options, if the funding rate is unaffordable, are to reduce your target income or retire at a later date.

Chris Wicks, IFA, N-Trust Limited