Is a phased retirement right for you?

Not that long ago, retirement was a clean break between your working life and your remaining years.

Employees would serve for 40 years; they would then collect their pension, their carriage clock and wouldn’t look back. Increasingly this is no longer the case, and instead, employees (with employers’ permission) are opting to take a phased retirement approach.

What is phased retirement?

Phased retirement is when an employee transitions into retirement by gradually reducing their working hours. It can mean a reduction in hours or days, post-retirement part-time work or even job-sharing opportunities.

It means that they can continue to earn an income while also adjusting to stopping work altogether.

For some, it could also involve accessing some or all their available pension benefits, in a bid to compensate for the reduced pay.

As with most financial decisions at retirement, there are advantages and disadvantages.

Advantages

Pension pot boost – Many worry whether their total pension benefits are sufficient to last throughout retirement.

A phased approach means that you can continue to boost your pension, even with a part time salary.

It can also mean that you may only need to access some of your pension benefits in early retirement, leaving more for the future.

Maintain a sense of purpose – Many don’t wish to give up work completely due to concerns or anxiety related to such a major life transition.

Many of us are staying ‘work fit’ for longer, both physically and mentally. This means that we’re not always ready to stop work completely in our early 60s.

For employers – Maintaining experienced staff can reduce valuable ‘brain drain’.

Retirees can pass on their knowledge and can assist with succession planning. It can reduce expenses, as costs of recruiting and training new staff can be high.

Disadvantages

Ability to cope financially – You’ll need to consider current expenditure and work-related costs (commuting etc.) plus income tax position carefully.

Also to consider that pensions and other assets aren’t accessed to the degree that it negatively impacts long term plans. Advice from a professional can assist here.

For employers - Not all employers support phased retirement due to difficulties in finding part-time replacements or job-sharing partners.

They can also be put off by the need to maintain ongoing benefits such as private health and death in service.

It could be right for you in the following circumstances:

• You enjoy work and wish to keep it part of your life as you age.
• You have a health issue which makes it difficult to work full time.
• You have sufficient assets/pension benefits to aid the reduced income from work.
• You need time to get used to your new lifestyle and income/expenditure.
• You have the necessary support from your employer.

Phased retirement allows a gradual transition into retired life. It allows ongoing income to ensure that pension benefits are maintained