Troy Batley and Ana Sarginson have a comfortable income, but with three children to support and their retirement to plan, they want to make the most of every penny.

Troy, 42, and Ana, 43, run a small limited company, which pays each of them about £30,000 a year through a combination of salary and dividends. Their children, Isabelle, 16, Beth, 13, and Felix, 10, all go to state school, but the couple want to have a pot of money to help their children through further education and into good careers.

With the prospect of the state pension age rising if the Conservatives win the next election, Troy and Ana also need to save enough for their retirement. “How can Ana and I make sure that we have sufficient funds on which to retire at 65? We are not intending to live like kings, but we would like to be debt-free and with a reasonable income,” Troy says.

The couple own their family home in Wickham Market, Suffolk, and two buy-to-let properties in London. Their family home is worth about £550,000, with £120,000 remaining on their mortgage, which is with Virgin One at 3.65 per cent.

Troy says: “I am happy with Virgin and the flexibility it gives us. I try to overpay the mortgage as much as possible with dividends from the business. There is a facility on the account to borrow up to £180,000, which we use for large purchases such as holidays.”

Their buy-to-let properties are in Barbican, Central London. The first, a two-bedroom flat, is worth £440,000 and has an interest-only mortgage of £290,000 with the Bank of Ireland at 6.19 per cent, fixed until May 2011. Monthly repayments are £1,490 and the flat is let at £1,600 a month. The mortgage can be overpaid by up to 10 per cent a year.

A buy-to-let studio flat in the same area is valued at £250,000. The £175,000 interest-only mortgage with Birmingham Midshires is on a variable rate that tracks at 1.95 per cent above base rate, giving current repayments of £357 a month. This flat is let for £1,000 a month.

Troy says: “Should we sell one or both properties and invest the profit in a better-performing asset class, or should we hang on to them? And should we consider a method of trying to reduce the debt on the buy-to-lets or simply view them as assets to sell at retirement time?”

Ana does not have her own pension and will rely entirely on Troy’s pension and state provision. Troy’s total pension pot, which is paid for by their limited company, is worth £68,000 and is managed by St James’s Place. Their company pays £395 a month into the pension, with investments split equally between the Far East and St James’s Place managed fund.

“Should Ana take out her own personal pension — and if so, do the experts have any recommendations?” asks Troy. “My pension comes with plenty of letters and glossy magazines providing information about wealth management, but the pension has not performed amazingly well. Should I move to another provider?”

Unusually, Troy and Ana have no cash savings and have put their spare cash into an equity Isa, also managed by St James’s Place. Since 1999 they have contributed £40,000 and the pot is now worth £52,000.

“I pay £250 a month into the Isa, and this fund is earmarked to assist our children through further education and gap years. But should I stay with my current provider? Should I contribute more and take advantage of the tax-free allowance?”

With no debts apart from their mortgage, the couple are keen to take advantage of any good investment opportunities that might arise in the recession. “Our risk profile leans towards the adventurous, but we won’t risk everything,” Troy says.

Troy and Ana: What the experts say

Financial planning Dennis Hall, Yellowtail Financial Planning

“The buy-to-let investment strategy is flawed. Troy has already identified a weakness in his property portfolio by realising that accessing the capital will mean selling the properties, and that isn’t very tax-efficient. On the sale of each property the capital gain will be realised as a single lump sum. Troy and Ana will be able to utilise only one year’s individual tax allowances because they cannot spread the gain over several years. Other less bulky assets, such as shares, will allow phased disinvestment.

“Another problem is the reliance on capital appreciation. Property is an income-producing asset, but interest-only mortgages are not going to free up much income. With no repayment strategy, they are relying purely on capital appreciation and then selling at the right time. With renewed talk of further falls in the property market, it could be many years before we return to conditions in which property rises above other forms of investment.

“That brings me to diversification. A portfolio that is heavily weighted to a single asset class (property) carries higher risks. The couple may think that the mortgages allow them to leverage their investment, and that’s true, yet other investments can also offer leverage; investment trusts are a prime example. These generally cost less to run than equivalent unit trusts and can invest in a variety of asset classes; shares, property and private equity spring to mind. I like Hg Capital (Private Equity), F&C Commercial Property and Templeton Emerging Markets.”

Action plan

Consider selling a property while the market appears to be peaking.

Look at diversifying your portfolio and consider investment trusts.

Pensions: Laith Khalaf, Hargreaves Lansdown

“With Troy’s £68,000 pot and £395 monthly contribution, at 65 he can expect about £12,000 annual income from his private pensions (assuming 6 per cent fund growth and 2.5 per cent inflation). He and Ana can expect their state pension to increase this income to about £25,000. However, they may not be able to draw on this until age 66, given the planned changes to the state pension age.

“Is £25,000 a year enough? It is substantially less than what they earn, although some costs are likely to have disappeared at retirement; the children will have left home and, hopefully, the mortgages will be paid off. And the buy-to-let properties can provide a significant income.

“Building a pension for Ana is the priority. By sharing pension contributions, Troy and Ana will each draw an income individually in retirement. This has tax benefits because they are making the most of their personal tax-free allowances. If all the income is directed to Troy, it is only his personal allowance and basic-rate tax band that will be used up, which means that they will pay more tax.

“Check how much St James’s Place charges for managing the pension — are the fees competitive? If Troy is unhappy with the fees or performance, he could transfer to a stakeholder, which would have a maximum fee of 1.5 per cent for the first ten years, 1 per cent thereafter. However, this is a basic pension, which will probably offer him only a choice of ten or so funds managed by the insurance company. Alternatively, he may be able to transfer to a cheaper personal pension or Sipp (self-invested personal pension), but in both these cases he will need to exercise the choice of fund himself.”

Action plan

Open a pension for Ana.

Investigate current pension fees and performance and transfer if unhappy.

Investment: Brian Dennehy, Dennehy Weller & Co

“The equity Isa has gone up by £12,000 since 1999, which highlights the value of investing monthly.

The obvious problems with the St James’s Place Isa are the initial charge (5 per cent) and the limited range of funds. An investment specialist independent financial adviser would normally charge about 2 per cent for bespoke advice and would have at least 1,000 fund choices, so you can choose from the best across the whole investment industry rather than be constrained to St James’s Place funds.

“It is also important to have a simple financial plan for the Isa savings, such as a spreadsheet showing when the further education charges will arise and how much you need to contribute to meet these costs. Your St James’s Place adviser should be able to help, but if not, this is another reason to go elsewhere. Don’t forget that as education costs for each of the children come closer, you will need to earmark part of your Isa to be put into lower-risk funds.”

Action plan

Work out roughly how much you need to save to meet children’s costs.

If unhappy with St James’s Place fees or Isa performance, consider a cheaper alternative.

Troy’s response

I agree with Dennis Hall that we are too exposed to the property market. But even with the market slump, the two-bedroom flat has still increased in value by 35 per cent since 2005. However, I will research the historical growth on investment trusts and exactly how they can be leveraged. Despite my reservations, I think we will dispose of the smaller flat and consider investment trusts.

Knowing that our pension will probably be worth about £25,000 a year is very reassuring. We will now look for a good stakeholder pension for Ana. I could be involved in the management of my pension, but I will need to investigate specific cheaper alternatives.

It was very interesting to hear Brian Dennehy’s views on the St James’s Place Isa. I knew the charges were steep — something has to pay for those glossy magazines — but I did not know that there was such a limited range of funds. I will find a new, hopefully cheaper, adviser who can draw up a spreadsheet of our future costs and adviseaccordingly.