David and Marie Birkett, both 51, are planning for their retirement. But the couple admit that they have their “fingers in too many pies” and are unsure which investment option to pursue.

“I have dabbled in various money-making schemes over the years, from carpetbagging to equities and buy-to-let,” says David, a human resources manager at the Post Office. “Now that I am hoping to retire in six years, I need to take control of my finances and adopt a more coherent investment strategy.”

The Birketts want to put together a five-year plan that will allow them to maximise their resources and retire at 57. David also wants to ensure that Marie has a good income (of at least £18,000) if he dies first.

Luckily, David will benefit from a good final-salary pension from Royal Mail, which will pay £18,000 if he starts drawing the pension at 60, as well as a £54,000 lump sum. If David dies before Marie, who has no pension of her own, she will receive £8,000 a year and a £140,000 lump-sum death benefit. “If I am to retire at 57, I will have three years to fund myself — so I would like some advice on how to do that,” David says.

The Birketts have two buy-to-let properties in Lancashire, bringing in a total monthly income of £870 before mortgage payments, as well as their own home in Warrington, Cheshire. The combined value of their properties is about £440,000 and their total equity is about £210,000.

“All three mortgages are interest-only tracker deals, so our monthly repayments have plummeted recently in line with the base rate,” David says. “The mortgages currently cost only £475 a month, compared with £1,300 a year ago. It is only in the past nine months that our buy-to-lets have actually been profitable.

“I did start to make overpayments on my Northern Rock buy-to-let mortgage. I had to call every month to ask them to use this money to reduce my balance, otherwise it would just sit in a pot until the end of the year. So I stopped and now have about £500 a month to spare.”

The Birketts’ biggest mortgage is on their own home, for £107,000. David is concerned about interest rates rising again, so he has arranged a new five-year fixed-rate deal with the Post Office, at 4.65 per cent. He has five months to decide whether to take the deal or stick with his tracker.

David has recently started to dabble in stocks and shares — and has been delighted with the results. His initial £10,000 investment in February has now grown to £18,000. Almost 40 per cent of his portfolio is in finance and banking companies, 20 per cent is in real estate and the remainder is in various FTSE 250 companies.

“The returns on my cash accounts look so dismal in comparison that I am considering investing more — but it is much riskier than cash, so I am not sure if this would be the best strategy at my age,” he says. “Would another buy-to-let be a better investment now that house prices seem to be bottoming out?”

The Birketts also need to organise their £12,000 savings. The money is spread around various accounts, with more than £2,000 languishing in accounts paying only 0.1 per cent. Their Halifax regular saver, into which they pay £140 a month, has a good rate of 6.25 per cent, but this account matures next month. The largest lump sum is £5,000 in a Nationwide Isa, which pays 2.6 per cent at the moment.

“I do not want to build up more cash reserves,” David says. “I already save about £250 a month for a rainy day and think that is enough. I am more interested in using my spare £500 to overpay my mortgage, invest more in equities or perhaps open a personal pension for my wife. Which would be the best use of the money?”

What the experts say

Investment: Brian Dennehy, Dennehy Weller & Co

“You have made handsome returns over the past few months by taking considerable risks in banks and property shares. This was indeed a very rare opportunity and success, and one that will be seldom repeated.

“I do appreciate that with such a secure income you are perfectly capable of taking these risks. But how would you feel if this £18,000 turned rapidly into £9,000, or less? Remember that the stock market will play games with you. Any current feelings of euphoria will soon be dispelled. My instinct is that taking control and having a coherent investment strategy does not fit with your current share-buying.

“I certainly do not see another buy-to-let property as a sensible investment choice. First, you should be looking to diversify, and your investments are already overwhelmingly weighted to property. Second, you should be looking to eliminate mortgage debt over the next six years as the priority of your financial planning.

“My strong inclination would be to use the £18,000 to reduce debt, and use the £500 monthly surplus to pay off the rest of the debt as rapidly as possible over the next six years. You do not want to be retired while holding large debts and being exposed to spiralling interest rates.

“Once debt is under control and largely eliminated, you will have strong positive cashflow, both before and after retirement. Use this for monthly investing, preferably into investment Isas in your wife’s name, so she can use this pot of money as a source of income should you die before her, but focus on debt reduction right now.”

Action plan

? Adopt a less risky approach to investment.

? Do not invest in another buy-to-let property.

Pensions: Laith Khalaf, Hargreaves Lansdown

“David is one of the privileged few who will retire with a good final-salary pension. Marie will receive an £8,000 income from the final-salary pension in the event of David’s death, but this is short of the £18,000 minimum income that she needs.

“She will receive some state pension in her own right, and possibly some because of David’s state pension entitlement. Both of them should obtain a state pension forecast, which they can do online at thepensionservice.gov.uk. Marie is likely to receive between £5,000 and £8,000 a year from the state after age 65, so she will probably still be short of the £18,000 mark.

“However, the £140,000 lump sum that she can expect from the final-salary pension could be used to produce an income by various means. For example, holding it in a savings account, investing in Isas, buying a life annuity, or a combination of these. By using this money in this way, she should be able to lift her income above the £18,000 mark.

“A more immediate problem is how David and Marie will support themselves in the three years between their retirement date and David’s 60th birthday, when his pension becomes payable. It may be possible to take his pension early, but this will result in a reduction in the income that is paid.

“By paying off their mortgages, David and Marie will increase the rental income that feeds through to them. However, they will still need to make supplementary savings to fund those three years.”

Action plan

? Obtain a state pension forecast.

? Save in best-buy accounts.

Mortgages David Hollingworth, London & Country “David and Marie’s biggest debt is on their main residence — and this needs to be cleared as soon as possible. As it is currently interest-only, the capital is not being eroded at all. Overpaying makes a lot of sense as rates have plummeted. However, rather than repaying the smaller buy-to-let mortgage, the primary focus should be on the mortgage on their home.

“The five-year fixed rate that David has reserved cannot be beaten, particularly as fixed rates have risen in recent months. While the fix will be higher than his current tracker rate, it will protect against future rate increases. Switching to a repayment mortgage would seem sensible and they could even continue to overpay up to 10 per cent a year without incurring an early repayment charge.

“It is not clear whether the buy-to-let properties are seen as a source of income or if the intention is to sell to release any capital appreciation. With retirement on the horizon, they perhaps need to consider whether these properties will be able to provide an income when rates rise. It would be hopeful, to say the least, to expect house prices to start rising dramatically in the short term.”

Action plan

? Overpay main mortgage.

? Stress-test finances to estimate the impact of higher interest rates.

David’s response

Overpaying my mortgage is now the main priority. I have realised that another buy-to-let property would not be sensible, especially if interest rates go up in the future.

I am sure that the advice on equities is sound and I will not rely on the stock market to provide income in the long term. However, I still feel that there is money to be made in the short term. I may continue to dabble, although not with large amounts.

I agree with Mr Hollingworth’s advice about the fixed-rate mortgage and I will switch to this in five months’ time.

Having done some more research on my pension, it turns out that I was wrong about Marie receiving £140,000 on my death.

If I retire at 57, she would get a lump sum only if I die before 62. So Marie’s pension arrangements will require some more serious thought.

I am not sure whether to use cash and investment Isas in Marie’s name or to set up her own pension to provide an income in the event of my death.