‘I’m 77, living carefully on a state pension – how can I afford to visit friends abroad?’

Nicola Simpson, 77, doesn’t have expensive taste. Since she stopped working three years ago she has relied predominantly on her state pension of £1,056 a month plus a quarterly sum of £450 from St James Place (SJP) where she has £50,000 invested.

After buying her flat in 1983 for £23,500, she is now mortgage free and the property is worth around £250,000. It is grade two listed and needs work done, she says, meaning big costs can come out of the blue.

“I afforded the flat by eating Ryvita sandwiches every day for a year and saved the deposit,” she says. Now she manages the freehold for the building that the tenants bought 20 years ago.

Her private pension with Aviva gives her £700 at the start of the year out of a total £20,000 saved and she has an additional £4,500 in a Nationwide account.

She has enough to cover essentials, even expensive ones such as the £3,500 hearing aids she bought last year, but would like to improve her quality of life by travelling to visit friends abroad and making improvements to her home such as the bedroom and bathroom.

“I have a friend in Greece who I would like to see as she has cancer but being sensible I can’t do it. It is okay though because we speak on WhatsApp,” she says

But even these, she says, would be “nice to haves”. What Nicola is really after is financial security. She has tried to reduce her costs but there are limits to how far she can go. “I don’t crave expensive things,” she says. “I barely drink anymore which is a great sorrow to me as I used to enjoy that. I used to take day trips to France but I can’t afford that any more.”

Last year she replaced her 23-year-old Seat Arosa car with a second-hand Fiat costing £3,600. If she had the option Nicola says she wouldn’t have a car at all, but her beloved dog Reggie is getting old and is too anxious to be left alone in the flat so the car is needed for their travels.

She hoped she could remove some of her savings from St James Place to spend as she likes, but was told this wouldn’t be possible.

She has a dentist appointment next month that she expects to land her with a £100 bill.

Put simply, Nicola is looking for ways to use her money to make life a bit easier and a bit more enjoyable.

“I have no one to talk to about it, I don’t want to bore my friends. But there must be millions of people like me.”

Lisa Caplan, Director OneStep Financial Planning at Charles Stanley

Nicola is in a reasonable financial position.

She has regular income that covers her current expenditure needs and has a nest egg of £4,500 with Nationwide. She owns her property outright.

Looking at her regular pension income and direct debits, after paying for the basics, and some hobbies, she has around £600 a month to cover food, holidays, entertainment, and other extras. Her investment income and Aviva payment help top up her income.

It looks like she is quite careful with her money. Ultimately, it’s a question of priorities, what is most important to Nicola and what is sensible. However there are places where she could improve.

Firstly, she may want to look at increasing her savings pot to cover emergencies. Her nest egg would just about cover a new set of hearing aids, and she may want more flexibility for other unexpected costs such as car or flat repairs.

Nicola wants extra money to enjoy life a bit more. Possibly there are some savings to be made from her direct debits
It is a good idea to check the direct debits to see that they are still relevant and up to date. If the item is useful or enjoyable, such as the bridge club subscription, it should be kept. I notice direct debits for both Vodafone and TalkTalk. There may be a good reason for both, but worth checking.

Nicola would like to take money from the Aviva pension. This will not be possible if the £700 a year she receives is an annuity and the £20,000 is used for that.

If it is not an annuity, she can ask Aviva if she can increase the amount of money she is taking from the pension. Assuming the tax free 25pc lump sum has been taken, any money Nicola takes out of a pension will be taxed as income, in her case this will probably be at 20pc as her state pension exceeds the personal allowance of £12,570.

Some pension providers require clients to get advice before taking money from pensions. It may be that the cost of the advice to move the pension is high relative to the value of the pension, and that is why SJP felt it was not possible.

If Nicola is determined to take the money, she may be able to do so without advice via moving to an online execution only service, but she should take care that she does not lose any valuable guarantees by doing so.

Another alternative source of funds is her investment with SJP. As she is a client of SJP, she can ask her adviser about the possibility of doing this. If her money is tied up in a bond, she may find that there are punitive withdrawal charges and there may be tax implications as well.

If her money is in an Isa it can usually be accessed very flexibly. Depending on the type of investment, Nicola can ask her adviser about the potential for increasing the income paid out and frequency of payments.

Some may point Nicola towards equity release, but this can be a very expensive and inflexible way of getting extra funds. I would see this as a last resort and Nicola has other options.

William Stevens, head of financial planning at Killik and Co.

Ms Simpson is at the stage of life that many who seek advice are, trying to make the most of her finances to fund the lifestyle she would like to, while she is able to. She has a mixture of fixed income sources and investment pots to support her regular and exceptional expenditure.

The key to Ms Simpson’s finances is that her state pension supports her regular spending. This is a strong starting point as the state pension is protected by the triple lock, meaning it should rise in line with her expenditure in most cases. With her home mortgage-free the rest of her invested assets can be used to fund her desired lifestyle, though it is always worth ensuring holding some funds back in case they are needed to support potential care costs in later life.

Looking at finances in a three-pot approach can be helpful for providing an easy-to-understand structure. To protect against any worse-case scenarios, it is important to maintain a rainy-day fund to cover emergencies. We tend to recommend six to 12 months expenditure, which Ms Simpson has in this case, with roughly nine months in savings.

Beyond this, if there are any future expenditures that are already known, it is important to have these funds set aside.

Finally, you are left with the residual pot of lifetime savings, which can be used to fund discretionary expenditure – such as the goal of travelling to see friends overseas.

On top of her state pension, Ms Simpson is currently drawing an income from invested assets of £2,700 a year, or roughly 4pc of £70,000 invested. This would be viewed as a sustainable level of income by many but cashflow modelling out the affordability of this over the long term would be a worthwhile activity.

It may be that she could afford to draw a higher level of income to support her objectives but would risk reducing the capital value of her funds over time – the priority of this should be weighted up with any preference for leaving a legacy.

It is important to understand what fees Ms Simpson is paying for her investments and what level of return she is achieving for this. Given the focus on delivering an income that can be spent, perhaps a move to lower risk, higher yielding assets might be appropriate to generate more income to spend on a regular basis. However, given the state pension in payment, it would be worthwhile to make sure any investments are sheltered within tax-wrappers – such as Isas.