A new retirement for changing times?

The pandemic may be changing retirement alongside work patterns and expectations.

The acronym ‘WFH’ is now fully embedded in the 21st century lexicon. The working from home shift is already leading major employers to reconsider their office space and employees to review fitting work into their living space. The WFH experience could also accelerate an existing trend for retirement to move to a gradual, phased process rather than an abrupt end to working life.

There is much to be said for making a gentle transition into retirement instead of simply flicking off the work switch:

  • It avoids the sudden lifestyle change which can be traumatic, both for the new retiree and their partner.
  • Employers can retain valuable knowledge in the business that would otherwise be lost.
  • The drop in net income for workers transitioning to part-time is proportionately less than the drop in the hours worked due to the way that income tax and national insurance operate.
  • With the state pension age continuing to rise – the move to 67 begins in less than five years – gradual retirement may be an affordable option whereas full retirement is not.

A recent survey showed that 56% of people retiring in 2021 did not plan to give up work completely. Of those who had retired in 2020, 34% continued with some work, while another 21% said that they are now considering returning to work part-time. The latest statistics from the ONS show that at age 65 and above, 13.4% of men and 8.1% of women are still in work. The difference between the ONS and survey figures probably reflects the fact that the average surveyed age of those retiring in 2021 was just 60. 

Changing plans

The popularity of semi-retirement in the 2021 survey group is likely to be due, at least partially, to the disruption caused by the pandemic. Over a third had sped up their retirement plans in the preceding 12 months, citing Covid-19 related issues as important factors.

Bringing forward retirement will usually mean a lower pension income, hence the need to maintain some flow of earnings. That potential squeeze was reflected in responses to several other questions in the survey. For example, 48% said that they planned to reduce their spending habits to support themselves in retirement while 21% were intending to sell or downsize their property.

If the idea of a phased retirement appeals, but you want to avoid those lifestyle compromises, then the sooner you start planning the transition, the better. Assessing your income and expenditure as you move through to full retirement is key and not as simple as it might sound. For tax and other reasons, for example, it could make sense not to start drawing on your pension as soon as you stop full time work. Contact us to review your retirement options further. 

The value of your investment and the income from it 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. Investing in shares should be regarded as a long-term investment and should fit with your overall attitude to risk and financial circumstances.

The Financial Conduct Authority does not regulate tax advice, and levels and bases of taxation and tax reliefs are subject to change and their value depends on individual circumstances. Tax laws can change.

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