Article by by Sarah Pennells of SavvyWoman
So, the children have finally left home and the house feels a bit empty. It will probably take some getting used to, but it can be a great time to invest in yourself. You may be still supporting your children financially – especially if they’re at university – but that doesn’t mean you can’t prioritise your own finances. Maybe you’re able to free up some cash to invest in your retirement or perhaps you want to pay off your mortgage as quickly as you can.
Do your own financial MOT once the children leave home
Before you can work out what your options are, find out how much money you have to spare and the effect – on your finances – of your children moving out.
1. Go through three months worth of bank and credit card statements. Choose a ‘typical’ period and not a time when you either had very few expenses or blew the budget on a holiday.
2. Get hold of your latest mortgage, pension and investment plan statements. If you have a repayment mortgage and your statement is more than a few months old go online or ring up your provider and find out how much you owe.
Pension statements are much easier to understand than they used to be but there are still some catches. Firstly, unless you’re in a final salary pension, where the amount you’ll get at retirement is linked to your salary, the figures mentioned are only ‘projections’. That means they’re essentially estimates and are by no means guaranteed.
Investment statements can be harder to decipher but if you don’t understand what’s written down either get in touch with your financial adviser or contact the company you have the plan with and get them to explain it to you. The information that’s important is: how much your investment is worth now, how much it should be worth at the end of the term and whether there’s a penalty if you cash it in.
Become debt free as an Empty Nester
If you have debts, now is the time to prioritise paying them off. Pay off your most expensive debt (such as credit and store cards) first before you think about paying off your mortgage. Most mortgages let you overpay a certain amount each month although only truly flexible mortgages will let you over and underpay and borrow back extra payments you’ve made.
Making extra payments on your mortgage – even relatively small amounts – can save years off your mortgage term. However, it’s not something you should do unless you enough savings in a bank account to cover around six months worth of expenses. If you (or your husband or partner) were to be made redundant you must be able to pay the mortgage and your other bills while you look for a new job.
TIP: Before you overpay on your mortgage ask your lender about its policy on underpayments or borrowing back money you’ve overpaid. Even among providers of so-called ‘flexible’ mortgages, you may not be allowed to pay less on your loan once you’ve lost your job. Also, there’s no point in paying off a mortgage at 5% interest if you need to take out a loan (perhaps to improve your property) and would have to pay 10% APR or more.
Save more towards your retirement, if you can. If you have a pension fund of £100,000 you could generate an income of approximately £6,000 a year if you bought an annuity. The average amount that people save into their pension pot is nearer to £30,000, which will produce less than £2,000 a year.
Use a retirement calculator (there’s one on my website under the [http://www.savvywoman.co.uk/c0-pages/budgetingtools.php] budgeting tools section) to work out whether you’re on track with your retirement saving.
Don’t feel that the only retirement option is to save into a pension. ISAs are more flexible than mortgages and, while you don’t get tax relief on money you pay in, you don’t pay income or capital gains tax when you cash them in.