The pension landscape has changed a lot since the introduction of additional freedoms in 2015. Retirees now have more choice and flexibility than ever. While this is great, it can make picking the right option harder.
With an annuity no longer the go-to choice, the “cliff-edge” of retirement has vanished too. And yet a 2017 report by the University of Manchester found that 1 in 4 retirees opted for “unretirement”, the majority of those within five years of leaving work.
What is unretirement, and can good financial planning help you avoid it?
A quarter of retirees make a return to the workforce
Unretirement is the process of returning to work, whether in the same role or a new capacity, having previously retired. This can be through financial necessity or choice.
The University of Manchester report found that men were 26% more likely to return to paid work than women, with good health, a working partner, and unpaid mortgage debt among the other factors influencing the decision to return to the workforce.
Although your financial plans will be based on a set retirement date, no choice is set in stone. Finding out that retirement isn’t right for you makes unretirement a great option. But financial advice could help you decide when and how you want to retire, allowing you to make the best decision for you, the first around.
Ask yourself three simple retirement questions
At HA&W we use our knowledge of clients’ goals and aspirations, our years of experience, and cash flow modelling, to ask the right questions. You can ask yourself them too:
1. When do I want to retire?
This will be partly based on when you can retire. Currently, the minimum retirement age is 55. This will rise to 57 from 2028. The State Pension Age is currently 66.
You might think about the type of retirement you want. Retiring from a cliff-edge – that is, going to work as usual one day and then being fully retired the next – is quite different from a phased retirement where you can lessen the hours you work gradually.
2. What do I want to do in retirement?
You might have a bucket list of far-off places you want to see and experiences you want to have. These will come with costs attached. You might have other big-ticket items planned, like house renovations or a motorhome.
Equally, you might plan to volunteer, dedicate time to an allotment, or spend more time with your grandchildren.
Having an idea of what your retired life will look like will help you decide if it is affordable, or desirable. You can then alter your plans before your retirement date arrives.
3. Am I saving enough?
Speak to us once you have the answers to the first two questions and we can help you decide the answer to the third. Matching your ideal retirement to your current provision will allow us to see if you have a shortfall.
Not spotting a shortfall early enough could mean you need to consider working for longer or compromising on your standard of living in retirement.
With good, long-term financial planning, we can help you to budget effectively. This might mean upping your pension contributions where necessary or using non-pension funds to supplement your income in retirement, helping you to retire when you want, and in the manner you want.
Phased retirement, not unretirement
Cliff-edge retirement can be a shock, both financially and emotionally. No number of calculations can predict the exact amount you’ll spend once retirement arrives, and the switch from a busy office to spending more time by yourself might leave you feeling isolated and lonely.
Phased retirement can supplement your retirement income. You might opt for a move into a consultancy role, making use of the knowledge you’ve gained over a long and successful career. This will keep income coming in while you adjust to your new way of life.
It will also allow you to adjust emotionally. A gradual reduction of the stress and the social side of working life might make for an easier transition into retirement.
If you find you can afford to retire but you realise you would miss the social interaction, you might consider a move into the voluntary sector.
Get in touch
Although you might be counting down the days until your retirement, when the time comes, it can bring its own challenges. By asking the right questions at the right times, we can help you choose the right retirement option for you, so get in touch now.
Please contact us if you’d like to discuss any aspect of your retirement plans, including the pros and cons of phased retirement.
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.
