Retirement isn’t what it used to be. Gone are the days of a hard stop to work life followed by a static pension income. Today, retiring is a dynamic process, full of choices that allow you to blend work and leisure to suit your personal circumstances. Lovemoney had a good article on the modern concept of flexible retirement and how you can tailor it to your life.
The End of a One-Size-Fits-All Retirement Age
The notion of stopping work at 60 or 65 is becoming outdated. With the phase-out of Final Salary (Defined Benefit) pensions and the removal of mandatory retirement ages in 2011 for most professions, we’ve entered an era where the approach to retirement is fully in our hands. The introduction of pension freedoms in 2015 has further solidified this shift.
Working Into Your Golden Years
It’s a sign of the times — as living costs soar, working past traditional retirement ages is becoming more common. Statistics from the Office for National Statistics reveal that 1.5 million people over 65 are still employed, a number expected to rise due to financial pressures.
Crafting Your Flexible Retirement Plan
The Pros and Cons of Delayed Retirement
Many over 50s are choosing to stay in their current roles longer, with about two-thirds content to work until they call time on their careers. This decision can often come with employer support, such as flexible working arrangements or part-time roles, to ease the transition.
The Financials of Working Longer
Reducing your work hours doesn’t mean you have to compromise on financial security. You can negotiate with your employer for a part-time schedule or remote work, ensuring you maintain a steady income while enjoying more free time.
Boosting Your State Pension Through Deferral
Postponing your State Pension can be a savvy move. By deferring for at least nine weeks, your eventual payout increases by 1% for every nine weeks you delay. Given life expectancy, this could mean a significant financial boost over the years.
Continuing Pension Contributions
Even if you’re past the traditional retirement age, you can still contribute to personal and Defined Contribution pensions. But be mindful of the rules if you’re in a Defined Benefit scheme — there might be a cap on how much benefit you can accrue.
The Impact of Working Reduced Hours on Pensions
Shifting to part-time work might affect your pension accrual, especially if it involves a job change. It’s crucial to understand how reduced hours could influence your pension benefits within your current scheme.
Deferring Pension Withdrawals
Leaving your pension funds invested can pay off. Not only does it give your pot potential to grow, but delaying things like annuities can result in better rates and even enhanced payouts if you declare any health conditions.
Balancing Work and Pension Income
It’s entirely possible to start drawing your State Pension while working. And with private pensions, you can withdraw from a Defined Contribution scheme while still contributing to it, though it will affect your annual allowance. With a Defined Benefit pension, you may need to cease accruing benefits to start taking income.
Making the Most of Your Pensions
Prioritising Which Pension to Access
With multiple pensions, you have the flexibility to choose which ones to defer, contribute to, or draw from. Your decisions should be based on the specifics of each scheme and what makes the most sense for your financial goals.
The Strategic Value of Defined Benefit Schemes
If you have the option to continue accruing in a Defined Benefit scheme, it’s worth considering, particularly if you can draw from a Defined Contribution scheme without affecting valuable benefits.
Deciding on Defined Contribution Pensions
Evaluate any guarantees, charges, and investment options your Defined Contribution pensions offer. These factors will guide you in determining which pensions to draw from first.
Flexible retirement is about making informed choices that align with your personal and financial situation. It’s a balancing act of work, pensions, and leisure that can create a fulfilling and financially stable retirement phase. Remember, as you navigate these waters, it’s always wise to seek professional advice to tailor a retirement strategy that works best for you.