Naz Financial

A Personal Financial Blog from Naz Miller

Is Flexible Retirement the Way to Go?

Flexible retirement is something I hear more and more of nowadays. For some, it’s a lifestyle choice as they seek to wind down gradually from full time employment into retirement. For others, the COVID crisis has caused a re-evaluation of their priorities. Furthermore, for some, redundancy, or the threat of it, is causing them to reconsider their options, including flexible retirement.

So, I’ve put my thoughts down in this post to explain what flexible retirement is and whether it’s the right way to go. As ever, the decision will depend on your personal circumstances. So, if you’re considering flexible retirement, it’s best to talk to a financial adviser before acting.

When looking at flexible retirement, it’s essential to consider all your options.

What is Flexible Retirement?

Flexible retirement enables you to take out a proportion of your pension pot and tax-free cash benefits, while you continue to work on a reduced salary and fewer hours. Consequently, you can ease yourself into what might otherwise be a drastic change of lifestyle.

Age 55 is the earliest you can draw a pension and work part-time. Different pension plans have varying rules about what proportion you can withdraw without fully retiring, so check with your pension provider.

In planning for a flexible retirement, do consider the tax implications of the changes you make. Pensions are taxed as income, after all.

Now, let’s consider the pros and cons of flexible retirement, from my perspective. Also, things you may want to consider when it comes to making your retirement income last.

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On the One Hand …..

The pros

  • Flexible retirement allows you take things a little easier, without totally giving up on the social benefits and structure of employment. Sometimes the shock of suddenly stopping work can have adverse effects on your mental and physical health.
  • You can continue earning an income, albeit at a lower level. Any gap in your earnings can be covered by drawing on pension savings.
  • It enables you to continue to benefit from employer contributions into a workplace pension scheme, if you still qualify.
  • Continuing to work past your state retirement age means you no longer pay National Insurance, which then frees up a bit more cash for you every month.

The cons

  • Your pension savings may not be sufficient to make flexible retirement practical.
  • Taking part of your pension, especially your State Pension, the moment it becomes available could cause problems in the future. You may not be able to build enough savings from the income you’ve earned by working part-time and late in life to give yourself a good standard of living throughout retirement.
  • Make sure you’ve topped up your state pension, so you can maximise your state pension when it becomes available.
  • You could end up having to work for longer than intended or live on too low a level of income, if you cut your hours worked. Full retirement could move further into the future for you.

Try Something New

Moving to a flexible retirement and part-time working need not mean more of the same. It’s a great opportunity to maybe try something new.

  • You could monetise a hobby or interest, such as photography or crafts, selling your products online or at local events.
  • You could use your professional skills gained throughout your career to set up a consultancy, tutoring service or other business start-up.
  • If you have spare rooms, consider establishing a B&B or Air BnB.
  • Or, if you crave less responsibility, try working for a major company that values older workers. A well-known example being B&Q. There are many other opportunities to be found online, for example at Rest Less.

Make Your Retirement Income Last Longer

So, with all these things to consider, how do you make sure you have enough to live on throughout your retirement? That’s probably a subject for another blog, but here are a few pointers:

Pay into your pension for as long as possible.

Even if you’re in your 50s, 60s or older you can still improve your financial prospects once retired. You may be able to continue contributing to your private and occupational pensions. There’s less time for your money to benefit from stock market growth, but your contributions will still attract tax relief. For more information about how much you can invest visit the Pensions Advisory Service.

Keep a record of how much you withdraw.

Keep note of exactly how much you have taken from your pension and make yourself aware of the consequences of doing so. The government has limited the tax-free amount you can invest in your pensions to £4,000 a year if you’ve already accessed your pension pot (from April 2017). Anyone who has drawn on the taxed part of their pension can’t make a contribution of more than £4,000 a year. However, you can still take your tax-free lump of cash without triggering the £4,000 contribution limit.

Defer your State Pension if you can.

Your pension can increase significantly by deferring the benefits – by 5.8% for every year that you delay.

Take professional advice.

Pensions are complex and their rules change frequently. If you’ve got any concerns or questions about investing in a pension, please seek help from me or any other professional financial adviser.

All in all, flexible retirement can be a great, life-enhancing way to go if you get the finances right, but you do need to be careful and walk into your new work-life balance with your eyes open.

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Naz Miller

Naz Miller

I'm Naz and I'm a Financial Adviser. Prior to working in private practice, I spent 34 years working at Lloyds Bank in Cambridge and surrounding areas. My work has always focused on helping clients achieve their long-term financial objectives.

Glossary of Personal Financial Terms

AAA Rating

In short, AAA ratings (‘triple-A‘ ratings) are the highest credit rating available for an investment, such as a bond or company.

AAA ratings are issued to investment-grade debt that has a high level of creditworthiness with the strongest capacity to repay investors.

Similarly, the AA+ rating is issued by S&P (Standard and Poor) and is similar to the Aa1 rating issued by Moody’s. It comes with very low credit risk and indicates the issuer has a strong capacity to repay.