Tips for a Flexible Retirement
Flexible retirement (also known as phased retirement) refers to employees and self-employed individuals who draw on their pension while continuing to work.
This could allow you to:
• Earn additional money on top of your regular salary;
• Supplement existing income while working fewer hours;
• Continue contributing to the pension when working; and
• Defer your State Pension so that it pays out more later.
Is it a good idea to have a flexible retirement plan? These pointers will assist you in making your decision.
Examine the terms of your pension.
Each pension provider has slightly different regulations for accessing your pension, which may have an impact on your flexible retirement alternatives.
To learn out, consult your pension policy:
• The age at which you can begin drawing from your pension (usually 55, although this is due to rise to 57 in 2028)
• Whether you must have contributed to the pension for a certain number of years;
• Whether there is a minimum or maximum amount you can withdraw while working; and
• Whether there is a limit on the amount of times users can alter your flexible work schedules while withdrawing from your pension.
There may be serious consequences if you violate the rules of your pension agreement, so you should consult with your provider first.
Check to see if you can truly afford flexible retirement.
Typically, you can begin collecting on your pension at the age of 55. And, while you may not have enough in your pension to entirely rely on at that age, you may be tempted to withdraw lesser sums sooner so that you can have a more flexible retirement. So, by the time you completely retire, you’ll want to make sure there’s enough left in there to support you for the following 20 years or so.
To put this in context, if you drew £1,500 per month from a £250,000 pension pot, it would last approximately 19 years.
Of course, instead of spending your income during flexible retirement, you may save or invest it. You could even continue to contribute to a pension. In addition, when you reach state retirement age (now 66), you will be entitled to collect the State Income, which will supplement your pension.
Think about the tax consequences.
You can withdraw 25% of your pension tax-free, but the balance will be deducted from your wages. As a result, if the amount of taxable pension you receive puts you in a higher tax bracket, you may wind up paying more tax.
Example 1 (before include pension income):
• You make £30,000 from your employment
• Your total earnings are £30,000
• You are classified as a basic rate taxpayer
• You’d have to pay £3,498 in income tax.
Example 2 (after adding pension income)
• You make £30,000 from your employment
• You take £30,000 from the taxable portion of your pension
• Your total earnings are £60,000
• This classifies you as a higher-rate tax payer
• You would pay £11,496 in income tax
The MoneySavingExpert Income Tax Calculator was used to calculate both values.
You may decide that it is better to withdraw a smaller sum now and a greater sum later, once you are totally retired.
Inform your employer in advance.
Keep in mind that semi-retiring early is not entirely in your control. Your employer must also consent to the agreement; after all, they may need to make their own preparations to accommodate your plans.
Larger organizations are more likely to be experienced with this type of request, so get advice from the HR team before addressing your manager. If you work for a smaller company, you may wish to practice your ‘pitch’ with a trusted colleague first to see if they identify any potential issues with your ideas. Before communicating with your manager, you can address this.
Combine your pensions into a single account.
It’s likely that by the time you retire or choose a flexible retirement , you’ll have accumulated a number of pensions from several jobs. If you haven’t already integrated them, you should do it right now.
• A single pension is considerably easier to handle;
• You will not have to pay various fees; and
• You will only have to deal with one point of contact.
• You will know exactly how much retirement income you can expect;
Contact us right away if you want to consolidate your pensions into a single, easy, and transparent plan.