More people are talking about delaying retirement and continuing in work either fulltime or part-time.
Some because they have little choice given rising living costs; others because they like what they do.
The government is making the right noises about encouraging the trend – looking to coax retired middle-aged workers back into jobs to boost the economy. A trickle too have seen the writing on the wall and are ‘unretiring’.
All a long way from the days when you were expected to pack it in at 65 and very different from the height of Covid – according to the House of Lords economic affairs committee, economic inactivity has increased by 565,000 people since the start of the pandemic.
Just one snag to all the optimism … you need a financial plan both to assess your needs as well as to avoid potential pitfalls over pension rules, tax and the like. Not good if inadvertently you end up in a higher income tax band. If you are withdrawing an income from your pension while continuing to work, ensure that it is a sustainable amount.
Research from Legal & General found that on average pre-retirees (those aged 55+ who are still in work) plan to delay retirement by almost three years. Sixty-four per cent cited not being able to afford the loss of income. Others simply enjoying their jobs (26 per cent), and not feeling ‘old enough’ to retire yet (25 per cent).
Lorna Shah, managing director of retail retirement, Legal & General Retail, cautioned: “Retirement can be tricky to navigate even without the backdrop of rising living costs, so it is understandable that those approaching retirement aren’t sure what they want to do next. But retirement isn’t a once and done decision.”
Consider a blended approach. For example, you might want the flexibility of a drawdown option combined with the assurances of a pension annuity. Perhaps combine that with part-time work to both keep your mind active and bring in extra cash. There are other benefits – a 2018 Harvard report noted that “people who worked past the age of 65 were about three times more likely to report being in good health and about half as likely to have serious health problems, such as cancer or heart disease”.
However, there are downsides.
The insurance giant added: “Working after retirement age isn’t for everyone. There are advantages. You’ll still have an income – or boost your retirement income – and, as long as you are careful with the tax rules, still pay into your pension, with the opportunity to maximise your employer’s contributions. However, there are disadvantages. You may find your work stressful, and no longer want to be committed to long or unsociable hours. The freedom that retirement can offer is a tempting opportunity for many.”
Retiring gradually can help your pension last for longer.
The Pensions and Lifetime Savings Association (PLSA) says a single person needs a post-tax income of £20,800 to have a “moderate” retirement, £30,600 a year for a couple. This would allow for a £47 weekly shop, a car replaced every ten years, two weeks’ holiday in Europe and a long weekend in the UK each year.
List your expected weekly outgoings, factoring in fixed costs and a reserve fund for unexpected expenses. Then ponder how much extra you might need especially if you plan an indulgent old age including plenty of foreign holidays. Next, look at your income sources – state pension, private and workplace pensions, investments, savings, and see how the two tables line up.
Think about contacting MoneyHelper and Citizens Advice Bureau, and speaking to an independent financial adviser.