I recently heard a song on the radio that asked: why can't work feel like retirement? I’m not sure what the context for the question was, but the rapper was right: why can't work feel like retirement?
Because retirement, like work, can potentially be whatever you want it to be. It can also happen at a time and pace of your choosing. But how can you turn theory into practice and ensure your income continues to pay for the lifestyle you want for yourself?
A recently published government survey1 of people aged 50 to 70 who had left the UK jobs market during the pandemic and not returned, shows three quarters had done so out of choice. The reasons they gave varied and included both push and pull factors – from not feeling valued at work to wanting a lifestyle change. Roughly half said they had retired.
And yet, around two-fifths said they would consider returning to paid work (58% in the case of 50-somethings) – especially part-time work or work that was flexible.
What the study highlights are the increasingly blurred lines between work and retirement. And it only tells half the story since it doesn’t capture adults who might be managing the transition without leaving the jobs market at all and, where necessary, using their savings to help them do so.
Why wait until you are eligible for the state pension at aged 66 to 682 or even a free bus pass when you are 60 to make the change?
Because nowadays most private pension schemes – including self-invested personal pensions (SIPPs) and a majority of workplace schemes – can be accessed a good decade before the state pension kicks in (at age 55, rising to 57 in 2028). And if that still isn’t soon enough for you, you can always lean on the money you may have accumulated in your individual savings accounts (ISA) before then.
In any case, what’s to stop you combining income from your savings with income from work? If you do, though, just remember that income drawn from your pension, unlike other savings, is taxed as income once you go beyond your personal allowance. It can also impact your ability to save3.
Thanks to new technologies, pension freedoms and the cultural shift that has made remote working feasible for many professions, there are more options than ever before to ease yourself into retirement by gradually cutting back on work.
It doesn’t necessarily have to be one-directional, either. If circumstances change or an interesting opportunity presents itself, you could always choose to work again for a time, like some of the people in the earlier survey suggested.
Don’t think of it as simply an extended and enhanced semi-retirement but as a more flexible form of retirement.
The potential permutations of a flexible retirement are endless – from non-executive directorships to retraining for that less well-paid teaching job you always wanted to do to job shares to working freelance and moving away from the big city for a win-win of cleaner air and lower overheads.
Whether you semi-retire like a rocker or a librarian is up to you. You know better than anyone what you can still offer and what you want from life.
The key is to have a plan for how much you might need and to make sure you get the most out of your investments.
Be realistic about the total income you will need. Consider the rising costs of living, your basic overheads and food bills, as well as your discretionary lifestyle spending including gym subscriptions, holidays abroad and general leisure pursuits.
Then consider whether consolidating your various pensions would give you greater visibility over your finances, what your drawdown options are and how you might be able to make your retirement savings stretch further.
The latter is particularly important as you will want your investments to continue supporting you well into the future, long after you’ve given up work altogether.
That means withdrawing money at a sustainable and flexible rate, making sure you maximise the earnings potential for your remaining pension investments and keeping your investment costs and tax bill as low as possible so that more of your return stays with you.
Retirement is not the beginning of the end but a new beginning; a way for you to take back control.
Of course, the idea that you could easily re-enter the jobs market if need be is to assume you have skills and work experience that will still be relevant and in demand for years to come. It also assumes that you can overcome other potential barriers, such as ageism in the workplace.
However, if you do have good reason to back yourself, think of the hidden passions you could unlock and the better ways you could manage your wellbeing by taking a bit more time out than you’re currently doing.
Does that sound like a retirement goal worth striving for? Would supplementing a reduced work income with income from your savings make your idea of what retirement could be go a lot further? Is it something you can imagine doing sooner rather than later? If so, what’s stopping you from trying to seize the day?
1 Over 50s Lifestyle Study, 14 March 2022.
2 Depending on when you were born.
3 If you trigger what is known as a Money Purchase Annual Allowance, the amount you save in your pension each year falls to £4,000 from £40,000.
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