April is a significant month for people of a certain age. You are now within four months of your retirement date and could submit your application to retire this year. A significant factor in your decision will be your financial health. Here we consider the factors that could influence you to believe this is your time to retire.
Are you free from debt?
If your mortgage is paid and you have no other significant debts, then you may be in a great position to retire. However, if you have a lot of money outstanding on your home, your car or in credit card debt, you may need to postpone any thoughts of retiring. These debts could place a significant strain on your finances, and retirement will naturally mean a reduction in monthly income because pension benefits are usually always lower than earned income.
While you can do the maths and be sure you can still cover everything, hefty debts can reduce your flexibility to deal with unexpected events. Consequently, you should look to be debt-free before considering retirement.
Are you supporting a dependent?
If your children have left home and your parents are self-sufficient, you may be in a strong financial position to retire. However, you should be aware that once you retire, your financial freedoms may be limited, and you may have limited resources to help out your children or pay for a parent’s long-term care.
A financial dependent is always more expensive than you imagine. You will likely only feel the impact once your monthly income is reduced in retirement. Consequently, you need to factor this into your calculations when deciding if you can afford to leave teaching.
Do you have a retirement budget?
Pension poverty is a real problem across the UK and beyond. People living below the poverty line in old age present serious issues, especially with the cost of utilities. Therefore, before you retire, you should crunch the numbers and be consciously aware of the money you will have to spend and spare. Ask yourself if you will live comfortably in your retirement? If the answer is no, then this might not be the time to apply for retirement.
A place to begin this calculation is your monthly outgoings, which is the minimum cost of living. However, you should then add in those pleasures that will make retirement pleasurable. You do not want to leave work only to find you cannot afford to live your life.
Does your spouse agree?
If you live alone, then your decision to retire is your business. However, if in a relationship, you need to be aware that your reduction in income will directly impact your partner. You want the time in retirement to be fulfilling, where you live the life you dreamed while you were working. Communication when making such an important life decision is vital.
You may find that the financial consequences of retirement are complex. You can seek advice from an independent financial advisor who will help you understand the impact of retirement on your quality of life.
The content in this article was correct on 28th March 2021. You should not rely on this article to make important financial decisions. Teachers Financial Planning offers advice on your Teachers’ Pension Scheme. Please use the contact form below to arrange an informal chat with an advisor and see how we can help you.