Why You Should Consider A Phased Retirement

Rather than completely giving up work at a set age why not consider a phased retirement?
It used to be the case that once you hit your retirement age that was it, you packed up work to enjoy your twilight years. Or worse, you were forced to retire.
Thankfully, age discrimination laws put a stop to forced retirement and we are now seeing more and more people retire gradually.
Phased retirement has many benefits but in order to do it successfully you need to have the right financial structures in place.
The benefits of phased retirement
Phased retirement essentially means that you continue working but gradually reduce the amount of work you do over time until you fully retire.
For example, once you hit age 60 you might decide to work 3 days a week instead of 5. Then once you hit 65 you might retire completely.
We have some clients that are well into their seventies who still do some form of work.
There are many benefits to a phased retirement, the key ones being:
Gives you purpose. Having a job and work to do means you have structure to your life which has been proven to improve mental health.
Social interaction. Another major mental health benefit is having friends and social interactions with people. A workplace can facilitate this (although more difficult during Covid times!).
Keep employee benefits. The longer you work the longer you can keep your employee benefits like a company car, private medical and life insurance. All things that become more important and expensive as you get older.
Allows your pensions and investments to grow for longer. As you are still earning you don’t need to take as much out of your retirement savings meaning you can have more for later in life, make gifts to the children and leave a bigger inheritance.
Retire earlier. By choosing the phased retirement option you can actually partially retire earlier than if you were planning to retire completely. This is because you don’t need as much from your retirement savings.
Of course, the full benefit of a phased retirement only really works if you are happy and enjoy your job.
You shouldn’t work a minute longer than you have to in a job you hate and that causes you stress. Life is too short.
You could still enjoy a phased retirement moving to a new part time job though.
Having the right pension and investments for a phased retirement
The perfect type of phased retirement is one where you reduce your working hours and supplement the loss of earnings with income from your pensions and investments to ensure you are no worse off. Just working less!
This was the case for one of our clients Michael recently.
Michael is now 60 and has worked for the same employer for over 30 years. He enjoys his job but was getting tired of doing 5 days a week.
His pension with his employer was changed a few years back meaning he could take the old pension at age 60 whilst still working and building up funds in the newer pension.
We worked out that net of tax Michael could drop 2 days a week, start his pension and still bring home the same level of income in total as he did when he was working 5 days a week. Result!
Michael is now very happy enjoying his phased retired, giving him more time to focus on his hobbies on his days off.
In order for phased retirement to work you need a pension or investments that are flexible meaning you are able to change the withdrawals you make from them as your job situation changes.
For example, in the early stages of phased retirement you might only want a small amount of income from your pensions. Then once you retire completely you will need more income from your pension.
#phasedretirement #retirement #retirenow

[@PennyBluebottle]

I am still working full time but friends are pressuring me to take out my state pension which I have deferred. They say I am mad!

[@carlrobertsonmoney]

It all depends on the tax calculations. It may be that you could take the State Pension and then pay it all into a personal pension. This could be especially tax efficient if you’re a higher rate tax payer. It would depend on your earnings.