Retirement can be an exciting milestone, but one that you might feel nervous about too. Setting out how to achieve the retirement lifestyle you want could help put your mind at ease. One of the first things you may have to consider is how you’ll retire – would a phased retirement suit you?

Over the next few months, you can read about key considerations if you’re nearing retirement, from contemplating the emotional side of stepping away from work to how to access your pension. Read on to discover if a gradual retirement transition could be for you.

A retirement transition period could help you create a work-life balance that suits you

Not too long ago, many retirees followed the same path – they’d give up work on a set date.

Now, you have far more choices, which could enable you to strike a balance that suits you. An increasing number of people are choosing a phased retirement.

Indeed, according to the Great British Retirement Survey 2023, almost half (47%) of people aged between 55 and 65 who have reduced their working hours say it’s due to them winding down. Cutting your working hours could help you create a work-life balance that suits your needs if you’re not ready to give up work completely.

Reducing your hours isn’t the only way to transition into retirement either. You could switch to a less demanding job, work on a freelance basis, or even start your own business.

As well as allowing you to blend work and life in a way that’s right for you, there are other benefits to transitioning into retirement, such as:

• Continuing to receive an income to help your retirement savings go further
• Benefiting from the structure work may provide
• Enjoying the social aspect of being part of a team.

If a phased retirement is an option you think could suit you, there are some key decisions you might need to make.

5 useful questions to consider if you’ll transition into retirement

1. What does your ideal work-life balance look like?

Transitioning into retirement gives you the option to create a work-life balance that matches your goals.

So, it’s worth spending some time setting out what your ideal circumstances would be – would you want to remain in your current role? Do you want the freedom to set your working hours?

2. Will you need to supplement your income?

As you transition into retirement, your income may fall. If you could supplement your income from other sources, such as accessing your pension or depleting savings, factoring this into your financial plan could be useful. It’s an important step in understanding how long your assets will last and how to create long-term financial security.

You might also want to consider how your day-to-day expenses may change too. You might find some areas fall if you reduce how much you’re working, such as the cost of commuting, while other outgoings could rise.

3. Will you continue paying into a pension?

A pension may provide a tax-efficient way to save for your retirement thanks to tax relief. In addition, your employer must contribute on your behalf if you’re between 22 and the State Pension Age, and earn more than £10,000 in 2023/24.

So, even though your income may fall, it might still be worthwhile contributing to your pension when you consider the long-term benefits.

You should note that if you start to take an income from your pension, your Annual Allowance may fall. This is the amount you can tax-efficiently add to your pension each tax year.

In 2023/24, the Annual Allowance is usually £60,000. However, accessing your pension may trigger the Money Purchase Annual Allowance, which would reduce how much you can tax-efficiently contribute to your pension to £10,000.

4. Will you defer the State Pension?

The State Pension Age is 66 in 2023/24, but it is gradually rising. The government’s State Pension forecast could help you understand when you’ll be eligible for the State Pension, as well as how much you could receive.

If you’ll be transitioning into retirement after the State Pension Age, you may want to consider deferring claiming your State Pension.

For every nine weeks you delay taking it, your State Pension will increase by the equivalent of 1% – defer for a year, and the income you’d receive would rise by just under 5.8%.

As well as boosting your future income, deferring your State Pension could reduce your Income Tax liability now.

5. How will a phased retirement affect your long-term finances?

You might not be giving up work completely, but don’t put off thinking about your long-term plans. The decisions you make now could affect your financial security for the rest of your life.

As a result, creating a retirement plan could be valuable and provide peace of mind by helping you understand the long-lasting effect of decisions like:

• Accessing your pension while you phase into retirement
• Halting pension contributions sooner than you planned.

Contact us to discuss your retirement aspirations

Whether you want to give up work on a set date or ease into retirement, a tailored plan could help you reach goals and build the life you want. Please contact us to talk about your aspirations for retirement and how you might achieve them.

Next month, read our blog to find out what questions you may want to consider when setting out your retirement lifestyle.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

A pension is a long-term investment, the fund value may fluctuate and can go down. Your eventual income may depend upon the size of the fund at retirement, future interest rates and tax legislation

Information is based on our current understanding of taxation legislation and regulations. Any levels and bases of, and reliefs from taxation, are subject to change.