Financial Planning, Pensions Advice, Financial Adviser Dunfermline, Fife, Edinburgh and Central Scotland

Friday 13th December 2019

Are you planning on taking a career break?

There are many reasons why you might decide to take a career break and it’s often an emotional decision. However, finances are likely to be a key part of whether it’s possible and the impact on your future. Uncertainty around the circumstances of some career breaks can make it incredibly difficult and stressful to manage finances.

Even if you don’t plan to take a career break soon, it could be on the horizon.

According to research from Aviva:

  • 19% of employees aged 45 and over in the UK expect to leave work in order to care for adult family members
  • 10% of mid-life employees expect they will have to leave work to care for children or grandchildren

Whilst career breaks for care reasons are common, many employers fail to consider the issue. It can mean there’s a significant disconnect and that working isn’t possible, even if a career break isn’t your preferred option. Just 6% of employers view caring pressures as a significant issue faced by their employees.

Lindsey Rix, Managing Director at Aviva, said: “The practical, financial and emotional costs of caring for relatives both young and old are forcing many people in mid-life to make increasingly difficult decisions about balancing commitments. Mid-life is the fastest-growing age demographic in the UK workforce, so we can expect these pressures to grow.”

Whatever your reason for taking a career break, it’s important to consider the financial implications.

The impact on your immediate income

The first thing to do is to make sure your plans are affordable in the short term. How would a loss of income affect your lifestyle?

Take a look at your outgoings and how these might change. You may find that your overall expenditure decreases. For example, travel costs may fall if you’re no longer commuting. There may also be areas where you’re happy to cut back in order to take a career break. Understanding your regular outgoings is the foundation for creating a financially secure career break.

Then, you need to look at your income sources. How will you meet financial commitments and live the life you want? You may have a partner who will be bringing in an income, for example. Alternatively, savings or an investment portfolio may provide you with the capital needed. You should also look at whether you’d be eligible for means-tested support.

Understanding the impact on your day-to-day life means you can make an informed decision about whether a career break is right for you and whether it’s financially possible.

Looking further ahead

When planning a career break, it’s often the short term that’s focussed on. However, it’s just as important that the medium and long term are considered too.

In the medium term, it’s likely that your savings will be affected. This may be due to using savings to supplement an income or because you’re putting less away. How will the impact on savings affect medium and long-term goals you may have? Will you need to adjust your plans to reflect the impact of a career break?

Another area to pay attention to is your pension. You may decide to take a break from paying into a pension, freeing up more income for now. However, even a short break can have a significant effect on the amount you retire with. Even if you decide to continue paying into a pension, you’ll lose the benefit of employer contributions. Again, this can have a big effect over the long term.

Planning ahead can be a daunting prospect but it’s a step that can help secure your financial future.

Modelling the impact of a career break

Calculating the financial impact can be difficult. After all, you may not have a concrete plan for when you’ll go back to work. Even if you do, you may have a lot of ‘what if’ questions. This is where financial planning can help.

We’ll help you understand how taking a period out of work will affect your finances in the short, medium or long term. With this information, you’re able to put precautions in places where necessary and proceed with confidence. Our goal is to give you the financial peace of mind needed to take a career break when necessary.

Whether you’ll be providing care or simply want a break, taking control of your financial future is crucial. Contact us to discuss how your plans could have an impact.

Please note: A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation which are subject to change in the future.