Navigating semi-retirement
With hybrid working now an ever-present part of the modern workplace, a similar trend is emerging in later-life - the hybrid lifestyle. Empowered by greater flexibility, embraced by employers, and often enabled by technology, increasing numbers are elongating their so-called retirement.
Whether it’s winding down earlier while working part-time or continuing to generate additional income past retirement age, this shift in behaviour demands a shift in conversations that advisers are having with clients too. With possible implications for investment risk, tax liability, and even in-life wealth transfer, having early awareness of clients’ semi-retirement ambitions and understanding the reasons behind such decision-making is essential.
The evolving retirement
The numbers are quite staggering. The amount of people who work beyond state pension age - which is currently 66 - is around 1.12 million1. And those over 50 make up more than 30% of the UKs working age population2. Almost half (49%) of workers aged 50 and over have either already started phasing into retirement (17%) by reducing their work hours or job responsibilities as they near retirement, or say that they want to do so (32%)3.
Data from the ONS shows not just that more than a third (34%) of employees say they now plan to stay in work longer than they did 2 years ago. It also reveals that just under a third (30%) plan to partially retire, while around a quarter (24%) plan to stop working before state pension age4.
It seems that this trend is here to stay.
Drivers of change
There are a variety of factors driving this - factors that shift between demographics.
Longevity is key. Living longer adds pressures and opportunities. For example, winding down work-load to deliver a better work/life balance may be the key factor for wealthier individuals, whereas those at the other end of the income spectrum may be forced to ease up on workload due to health-related reasons. Interestingly, it’s wealthy people that are also disproportionately likely to be in paid work in their early 70s5.
Advisers can play a key role in helping to prepare those planning to semi-retire, to make sure they make the most of their current situation. Key to shaping the conversations that these advisers are having is when and why are people making their retirement decision. There are, typically, six broad factors - for each of which the adviser and their clients need to properly plan.
- Tax efficiency: In the build-up to semi-retirement, making sure that any tax relief, allowances, and pension contributions are maxed out.
- Financial considerations: Are there any stock options, bonuses due that should be factored into the timing of the decision? And is there the option of taking a voluntary redundancy package?
- Health: Making best use of all employee perks, especially health checks, dental plans etc. Doing this can head off significant costs further down the line when there is greater financial vulnerability.
- Emotional: Planning for what can be an awkward mind-set shift - from saving to spending.
- Controllables: Preparation for the demands and goals of later life. This means modelling cash requirements, establishing diversification, and setting out realistic expectations around expenditure.
- Un-controllables: These are those possibilities that are likely to create the most anxiety for clients and for which mitigation strategies may need to be flexed as time goes on and circumstances change i.e. inflation, interest rates, government policy shifts, longevity.
The new conversation
What do advisers need to know or think about in preparation for this new ‘hybrid-lifestyle’ conversation?
As with all planning, the earlier that the aim of semi-retirement is known, the better the planning for its implementation. This not only gives clients the chance to make best use of any full-time benefits offered via their employer. But also ample opportunity to set out a clear financial plan around how to most effectively cover - or close - the gap between reduced work and full retirement.
For some clients, this will mean hearing some hard truths about their aspirations and what they need to do to make them achievable. But that’s a conversation that is a lot easier to have when the client is still earning a full-time income and is in a position to make any necessary adjustment to lifestyle and or expectation.
Sources:
1UK Data Service, Annual Population Survey, July 2023 - June 2024
https://beta.ukdataservice.ac.uk/datacatalogue/studies/study?id=9307
2CIPD, Flexible after 50 report, https://www.cipd.org/uk/about/news/report-calls-uk-minister-employment-flexible-working-over-50s-priority
3WTW 2024 Global Benefits Attitudes Survey https://www.wtwco.com/en-gb/insights/2024/09/understanding-the-employee-voice-the-2024-global-benefits-attitude-survey
4ONS, Reasons workers aged 50 years and over left and returned to work during the coronavirus (COVID-19) pandemic, Great Britain
https://www.ons.gov.uk/employmentandlabourmarket/peopleinwork/employmentandemployeetypes/datasets/reasonsworkersaged50yearsandoverleftandreturnedtoworkduringthecoronaviruscovid19pandemicgreatbritain
5IFS, Early retirement increasingly concentrated amongst the wealthy https://ifs.org.uk/news/early-retirement-increasingly-concentrated-amongst-wealthy