Money Helpdesk - I need option for an added income to boost my pension

I AM male, 57 years of age, currently in employment but may have to retire early on medical grounds. I am a member of a final salary pension scheme and would see this providing my core income during retirement.

However, I would like to supplement my pension with regular, probably monthly, income from investments and will have between £150,000 and £200,000 available.

I have no outstanding debts and my mortgage has been paid off. I am married with no dependent children. My wife works, is planning to retire in three years when she is 60, and is a member of her company's final salary pension scheme.

I have not previously put a lot of thought into retirement planning, other than paying into pension and savings, as the issue was some years away. But with the issue possibly being brought to the fore earlier than expected, I now need to look at how to maximise my income from capital. I am not averse to some risk but this would probably have to be at the cautious end of the spectrum.

I would appreciate any advice you can offer on the best way to invest my capital to provide the best regular income and some indication of the level of income that might be achievable.

JD

Tom McPhail, head of pensions research at Hargreaves Lansdown, writes:

A variety of products can be used for investing for income. The choice will depend largely on how much you need. There is also inflation to take into consideration. The buying power of money reduces over time: with the retail prices index running at 4%, £100 will only buy £67 worth of goods in 10 years' time and statistically you and you wife will have a retirement of around 20 to 25 years.

An investment into a cautious portfolio of equities and fixed interest on a split of, say, 60:40 will produce an income of around 3.5 to 4% per annum or more than £5,000 a year from an investment of £150,000. With this approach there is a good prospect that the value of the portfolio will rise and the income will rise with it. The portfolio's value could fall as well as rise, so this is a long-term strategy and you have to be happy with the risk. The income from these types of portfolio can be paid monthly.

If you do not want to take much capital risk you could consider cash-based investments. Generally, the safer the investment the lower the interest rate and if you spend the interest your capital's buying power will reduce. There are monthly paying building society accounts and among the best is Birmingham Midshires, paying 6.33% before tax.

National Savings Index Linked certificates are good value now since they pay the RPI plus 1% and offer a three and five year certificate. You can invest £60,000 between you and your wife. These don't pay income, but mature with tax-free interest.

Tax is an important issue and you should make best use of the tax rates that you and your wife pay. Invest using the name of whoever pays the least tax, and use ISAs every year to shelter investments from taxation. Investments into fixed interest within an ISA are completely tax free.

In the years leading up to retirement, check to see if you or your wife could improve your final salary pensions. You should also check your State Pension entitlements and whether additional contributions can be made to these to make up any shortfalls.