The rise of the ‘semi-retired’

Having spent the last 18 months working from home, we’ve now entered a period where many employees are reconsidering the requirement to be office-based full time, prompting many employers to also reconsider the need for large offices in city-centre locations. Whether this is to be a permanent shift remains to be seen, however we could also see an acceleration of a current tendency towards ‘semi-retirement’ which is a gradual, phased process rather than the conventional sudden end to working life.

A phased approach to retirement

Benefits to transitioning into retirement include:

• There is no abrupt lifestyle change which can be a difficult adjustment for both the retiree and their partner or any co-habitants.
• Employers can hold on to valuable knowledge and experience for longer and this also allows for the retiree to train someone up comprehensively to fill their role.
• The fall in net income for people changing to part-time hours is proportionately lower than the fall in the hours worked due to the way that income tax and National Insurance works.
• With the state pension age on the rise, gradual retirement could be a more affordable option for many.
• Earnings from part-time hours could mean that less is taken from the pension pot, or you may even be able to continue contributing. This means that when full retirement is taken, the finances in place should be better.

A recent survey revealed that 56% of those retiring in 2021 did not plan to stop working entirely. Of 2020 retirees, 34% continued with some work, while 21% said that they are now thinking about returning to work part-time. The latest data from the ONS demonstrates that at age 65 plus, 13.4% of men and 8.1% of women are still in some form of employment.

Changing retirement plans

It is likely, at least in part, that the rise in the popularity of semi-retirement is due to the disruption of the pandemic and the impact this has had on all aspects of our lives. The survey showed that over 30% had accelerated their retirement plans in the previous 12 months due to Covid-19 related issues such as repeated lockdowns and employment uncertainty.

However, it is important to consider the impact that bringing forward retirement can have on your finances. Bringing forward your retirement date will often equate to a lower pension income, so for many it can be crucial to maintain some kind of income. For many surveyed this was a concern reflected in the findings, almost 50% said that they would alter their spending habits to better support themselves in retirement and 21% would consider either selling their property or downsizing.

If the thought of semi-retirement is an appealing prospect to you, but you aren’t comfortable with making lifestyle compromises, the sooner you start planning for the phasing out of working life, the better. It can often be simpler to speak with a financial adviser when it comes to your pension, as assessing your income, expenditure and available funds as you move towards retirement isn’t always a simple process. For tax reasons, it’s not always financially sensible to start drawing your pension as soon as you retire.

The value of your investment and the income from it can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investing in shares should be regarded as a long-term investment and should fit with your overall attitude to risk and financial circumstances. The Financial Conduct Authority does not regulate tax advice, and levels and bases of taxation and tax reliefs are subject to change and their value depends on individual circumstances. Tax laws can change.