I’m 46, earn £25k and have £6k in my pension. Can I quit my job and retire for good?

Do you have a financial anxiety, dilemma or quandary? Ask Jessie Hewitson, veteran money journalist and editor, and new financial agony aunt for The i Paper. Jessie is answering readers’ questions while consulting with the top experts in the field (many of whom charge high fees) to get readers the very best advice. She will combine this with her own life experiences, which includes not always making the most sensible financial decisions in her personal life. Email questions to [email protected], with Ask Jessie in the subject line and she will get to work.

Alec, a reader writes…

I am 46, work as a teacher and want to leave my job as soon as possible and never seek employment again! I own my home outright. I have £230,000 in savings in various investment accounts and an ISA. I have 30 years of national insurance contributions. I am entitled to a Carer’s Allowance for my 80-year-old mother. My mother’s pension pays all our current expenses. Are my plans realistic?

Jessie responds…

When we chatted on the phone, you described the general atmosphere at the independent special school where you work – earning £25,500 as a teacher – as unhappy.

While the 13 weeks paid holiday you get a year is a plus, it doesn’t make up for the downsides, which includes finding the role quite tough.

You have been a teacher for 17 years. It’s a profession where the tacit agreement is that you are underpaid considering your skills and potential impact, but you receive a more generous pension compared with most of us.

But you are being underpaid in the here and the now – the starting salary for a qualified teacher in a state school is £31,650 – and you aren’t getting a great pension either. Your total pension saving is just £6,000 as you haven’t benefitted from the generous Teachers Pension Scheme (TPS).

This is because for 14 years you worked as a supply teacher and weren’t eligible to join it.

So you have only been saving this way for the past three years that you have been employed at a private school. And unfortunately for you, that school opted out of the TPS. Instead you are in a standard workplace pension with minimum contributions.

But back to your question, which is: can you afford to retire at the age of 46 given you are earning minimum wage and have a tiny pension?

And the answer, somewhat amazingly, is yes… (with a bit of luck).

Because despite earning minimum wage, in many ways you are in a better position than many people your age who may appear wealthier.

You have a very large amount saved up and no debt. Your arrangement with your mum is that you are in effect her carer and you both live off her pension income and you save any money you don’t spend. You are fortunate not to have to pay rent or a mortgage.

You are also very frugal and have calculated that you can get by on £10,000 a year, but if your income is £20,000 that will give you a comfortable life. You own one suit and describe the consumer culture that most of us have become trapped in, as “nonsense”.

Justin Modray is experienced at helping people with their finances and is the founder of Candid Financial Advice. He feels it it is realistic for you to quit work for good.

However, he points out there is a caveat. And this is what will happen when your mum passes away. It is a delicate thing to discuss, but while she’s alive you are living on her pension, and you could apply for the Carer’s Allowance (which will bring in £4,200 a year). The Carer’s Allowance is also important as it will give you national insurance credits. So if you receive the benefit for five years this way you can rack up the 35 years you need for a full state pension.

But when she dies, both things go.

Your mum is 81, and you expect to spend another ten years together.

If this happens your savings could grow from the £230,000 you have now to around £330,000 in today’s money. This is based on annual returns of 2 per cent above inflation.

When the worst happens with your mum you could buy a purchased life annuity. This is a financial product that gives you an income for life. You can buy one with normal savings – you don’t just have to use your pension savings.

At today’s rates, assuming you have £300,000 and are 57 (a bit over ten years older than you are now) it would pay around £11,400 a year until you die, rising with inflation. You would be left with £30,000 to cover emergencies like if the roof needing fixing.

You would have ten years of living on the lower end of what you need to get by, until you hit 67, when you are due to start being paid the state pension. This will, at today’s rate, double your money and push you over the £20,000 comfortable mark.

Of course there are many variables here: the calculations Justin has done above are based on the market today. He points out that annuity rates could change, which will impact how much you will receive (this could be positive for you as well as negative). The amount your investment could be worth could fluctuate, though it’s unlikely to be worth less than you’ve put in over ten years if you are invested sensibly.

And as you raised with me during our call, it is also possible that the state pension age will be pushed back and will become less generous. You think Reform will win the next general election and that benefits will be squeezed ever more and you don’t expect to get the state pension until you are in your seventies. And then, if your mum dies before you hope, or expect, you will have longer with not much income coming in.

I suggested an annuity to give you certainty and because it’s the least risk and hassle. The alternative is to live off what is called the ‘natural return’ of your savings. The rule of thumb is that if you take out 4 per cent a year (generally considered a typical return you’ll get on your money if it’s sensibly invested and well diversified), then you are unlikely to run out. And this would be £12,000 a year if your savings are £300,000.

My final thought is how cross I am at your employer for not valuing teachers at specialist schools more. My son goes to to an autism-specialist school and I know the skills required. I also know the need for those adults, who are in a caring role as well as a teaching one, to be happy in their job.

To have a private school pay its staff well below the average of the profession (both immediate income and pension income) and potentially charge large sums of the money to the local authority this way feels all sorts of wrong, though I am aware that there are potential reasons why private schools do this.

Sounds like you would be well out of it. So I hope you do manage to free yourself of a job that makes you so unhappy but I do wonder what you are going to do with your time. Wishing you all the best.