What is the alternative to a cliff edge retirement?

Since pension freedoms were introduced in 2015, the reduction in defined benefit pension scheme memberships and the overall change in social patterns, there has been an increased desire for a phased retirement.   The average person will rarely stay within one job for 40 years and retire with full benefits, instead the typical person will move jobs every five years and with many even changing careers multiple times. This can lead to scattered retirement benefits and the need to make complex decisions when we come to retirement.

What is the benefit of phasing into retirement?

By phasing into retirement, you can slowly relinquish responsibilities and potentially move to a part time position, if your employer allows.  Another way of actioning a phased retirement is to move into employment elsewhere, perhaps earn an income for a hobby that you enjoy, or work in a place you long considered.

A financial benefit from this is that you will continue to earn an income and not be fully reliant on the assets (pensions and investments) that you have accumulated in your lifetime.  As you will not have as much free time compared with if you fully retired, it is likely that you will need less money in this part of your retirement.  Filling free time can become costly.  On the other hand, you will still have more time to do the things that you may not have been able to do whilst being in full time employment.

Another benefit of phasing into retirement is being able to maintain the social interaction with work colleagues.  Although we may intend to continue a relationship with our work colleagues, if your friendship is centred around work and they do not have the same time that you have as a semi-retired person, these relationships can erode over time.  We spend a third of our time at work and although we may not realise it, often these are our closest connections outside of family.

If you are retiring with your spouse, the idea of spending all your time with them could fill you with delight; however, this period will usually be untested as you will have never spent this much time together before.  Moving to a reduced working week can allow you to manage the space with the relationship and still enjoy each other’s company at a greater extent than when you were working full time.

Not everyone is the same and the thought of retiring could be a welcome relief; however, once we have enjoyed the abundance of time, we should be intentional with how we spend it. Whether this is by supporting a local cause or following a dream that you now have time to pursue, it is important to try and replace the sense of accomplishment that you once had whilst you were employed.  This can come from taking on a new challenge and maintaining a level of responsibility that gives each day a specific purpose.

Having a clear retirement strategy with cashflow planning will put you in an informed position when making financial decisions.  You will have a better understanding of the retirement benefits you hold, where to take the retirement income from, in a way that is aligned to your objectives.  In addition, cashflow planning will provide you with evidence to show how your decision of when to retire will have an impact on the longevity of your retirement funds, whether this is from a pension or alternative investments.

If you would like to understand the financial impact of retirement, whichever way you choose to take it, please get in contact to discuss with us at Wingate Financial Planning so we can help build a retirement strategy which is right for you.

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