There was a time when the word ‘retirement’ meant just what it said on the tin. It was the milestone moment when you walked out of the world of work and into a new existence, characterized by an unprecedented amount of free time.
But retirement is no longer quite such a watershed. According to research published by insurer and pension provider Prudential, increasing numbers of us are reluctant to leave our places of work, even after the official retirement dates have come and gone. Around 50% of us plan to go on working.
There is, of course, no reason why a date on the calendar should dictate whether we carry on working or not. After all, a certain Donald J Trump had turned seventy when he applied for the fairly demanding job of US President and rival candidate Hillary Clinton wasn’t far behind. Closer to home, Jeremy Corbyn leads the Labour Party at the age of 69. Meanwhile, in the world of business, Rupert Murdoch continues to run a vast media empire, despite being just three years away from his ninetieth birthday.
And now it seems that the wider working population is inclined to follow the example of those in leadership positions – although perhaps for different reasons.
The Prudential’s survey – carried out by Research Plus – quizzed more than 9,000 coming up to retirement age in 2018. While around half planned to take their pensions and leave work in the time-honoured fashion, the rest were looking at a range of options.
Those taking part in the poll expected (on average) that retirement would last around twenty years and some were concerned about their ability to sustain a good standard of living over that period. Thus, around one in eight respondents admitted they were postponing their retirement date because they couldn’t afford to quit work. Nearly half of that number put their financial worries down to the cost of day-to-day living, which they said would not be covered by their projected retirement income.
Health and Wellbeing
But there were other factors at play, not least the fact that a significant number of pre-retirees find it hard to imagine life without the stimulation provided by the workplace. Rather than citing economic issues, two-fifths of respondents (43%) said they enjoyed working and 54% said they thought that staying in the workplace would help them stay healthy in both mind and body.
Which is not to say that as a nation just under half of us are looking forward to working 40 hours a week until we drop. One of the key trends uncovered in the Prudential survey was an increasing willingness to consider a gradual or phased retirement – or as the insurer likes to put it – a ‘pretirement’.
While 14% of those planning to delay their retirement would like to continue working full time, a much greater percentage (26%) would like to stay with their current employer but reduce their hours.
Donald Trump and Jeremy Corbyn are clearly not the only individuals to seek out fresh challenges in their later years. The survey also captured an appetite to take on new roles. Given that we live in an era where entrepreneurs have become the new rock stars, it is perhaps not surprising that 19% said that on retirement they would like to generate an income either by starting a business or monetising an existing hobby.
“Reducing hours, earning money from a hobby or changing jobs are all ways to wind down from working life gradually and for many to avoid boredom and maintain an active mind and body,” commented Stan Russell, a Prudential pensions expert.
But is all this realistic? In one respect, those who wish to work beyond the state retirement age – or indeed the age stipulated by their occupational pension terms and conditions – are not faced with any legal or regulatory barriers. There is, for instance, no default retirement date (it used to be 65) and the new retirement age of 66 is only in place to define the point at which a state pension becomes available.
In addition, current legislation says that an employer can no longer require an employee to retire at a given age. Equally important for those seeking to wind-down their hours, everyone has a right to ask an employer to consider allowing them to work a shorter week. However, the employer doesn’t have an obligation to agree to any change in conditions.
And there are undoubtedly some financial perks to working beyond retirement. As Jennie Boyle, Director and Chartered Financial Planner at wealth manager EQ Investors points out a combined pension and earned income will be taxable.
“However, Working beyond your state pension age means you are no longer obliged to pay National Insurance. “
And for cutting down on working hours, Boyle sees opportunities to make up for any shortfall in income by taking advantage of opportunities to economise.
“If your income is lower due to reduced hours, go over all your monthly expenditure to see what can be reduced”, she says. “If you’re working shorter hours then you might be able to take advantage of cheaper travel – particularly if you benefit from a freedom pass or equivalent you can use for off-peak travel.”
And as Boyle explains, there may be merit in deferring pension benefits while still working, in return for larger monthly payments at a later date. For instance, the payable state pension rises more than 5.0% for every year it is deferred. However, it’s important to check that the longer-term benefits outweigh the short-term cost of opting to put pension payments on hold.
In Sickness And in Health
There are other potential hazards for those who plan to go on working – especially if they are doing so because they would otherwise struggle financially. For instance, no one can predict the future. A current employer might cut down on staff and there are no guarantees of finding work elsewhere. More fundamentally, any deterioration in health could run a coach and horses through plans to bolster pension income with even a few hours of each week.
So Stan Russell urged a degree of caution.
“Not everyone has the luxury of choosing their retirement date due to their financial situation not allowing them to give up work and others may be forced to stop working for health reasons. Saving as much as possible as early possible in their career is the best way for people to ensure they are financially well-prepared for a retirement that starts when they wish or need it to,” he said.
A step through the door from working life into complete retirement is probably not for everyone. While some will welcome the free time to pursue interests, others will miss the cut and thrust of working life. And many will also miss the money. Carrying on working or adopting a gradualist approach to retirement may provide an answer.