Once viewed as obligatory, the once-traditional “cliff-edge and carriage clock” retirement has been on the wane for decades.
As long ago as 2006, the BBC was forced to report that “time had run out” for the longstanding gift as leaving presents turned tech-based. Next, the cliff-edge itself began to crumble.
Recent figures published by MoneyAge confirm that almost half (48%) of over-55s now plans to take a “phased” retirement. More than a third (34%) of over-55s still in employment have already begun the shift away from full-time work and responsibility.
If you are approaching the end of your career, you might decide that 2023 is the year that you start to phase your retirement. You’ll want to be sure that your plan is affordable and that it is the right option for you.
Keep reading for some important factors to consider.
Half of UK workers plan a phased retirement but the cost of living crisis could upset their plans
MoneyAge reports that 48% of UK workers aged over 55 expect to phase their retirement. This usually involves a slow reduction in hours and a measured handing over of responsibility.
It can be a great option for both employer and employee.
More than 3 million workers over the age of 55 are already in some kind of phased retirement. For those approaching retirement, though, the cost of living crisis has come at the worst possible time.
The survey found that 40% of over-55s looking to phase the end of their careers in the next five years fear that rising living costs will make this approach unaffordable.
Nearly half (44%) of those still in full-time employment would have begun a phased retirement already but cannot afford the hit on their salary.
So, what are the pros and cons of phased retirement? And could it be right for you?
Phased retirement can have financial benefits, especially if you have a shortfall
Like most retirees, you’ll probably have a retirement date in mind. Careful financial planning and budgeting in the years leading up to that date could mean you can phase into retirement.
If you approach your retirement date with a shortfall, though, staying in work for a little longer (in a phased capacity) could help to make up the difference.
Phased retirement allows you to begin taking some of your retirement income, while still paying into your workplace pension. Your contributions will still benefit from tax relief, so you’ll be building your pot, even as you begin to step away from your role.
You’ll need to think carefully about how you access your pension funds so that you don’t:
- Trigger the Money Purchase Annual Allowance (MPAA), thereby reducing the contributions you can make while benefiting from tax relief
- Push yourself into a higher Income Tax bracket by withdrawing too much from your pension, alongside your earnings.
There can be mental health benefits to avoiding the traditional cliff-edge
Going from a busy career one day – with constant meetings and client interaction – to the quiet and calm of retirement the next day, can be quite a jolt.
A phased retirement gives you the option to stay in touch with colleagues as you ease yourself into retirement, working out what your new life will look like.
You might also find that a phased retirement gives you more time to pass on the knowledge you’ve acquired during your career, giving something back, and helping to secure the future of the business. This can be particularly rewarding.
You’ll need to be sure that you can afford it
The cost of living crisis is particularly hard for retirees, whose income is often static. As inflation pushes living costs up, your retirement income will go less far.
Figures published by MoneyAge confirm that more than half (54%) of phased retirees cut their hours by 15 or more each month. This amounts to a reduction of £9,150 a year.
If this loss would affect your ability to live your desired lifestyle in retirement, you’ll need to think carefully. More than a third (38%) of phased retirees anticipate needing to adjust their lifestyle, with 17% worried that they will struggle to meet household bills.
You’ll need to weigh up the impact on your lifestyle, compared to the mental health benefits of reduced stress and time spent with family.
Get in touch
Please email hello@globeifa.co.uk or call us on 020 8891 0711 to discuss how Globe IFA’s expert financial advisors can help you.
Please note
The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Levels, bases of and reliefs from taxation may be subject to change and their value depends on the individual circumstances of the investor.
Workplace pensions are regulated by The Pension Regulator.
