Financial planning

Do we need to ditch the concept of retirement?

Retirement has long been seen as a rite of passage; the ultimate goal after a busy and successful career. But with rising pension ages and longer lifespans is the traditional concept of retirement now outdated? Ed Read Cutting, our Director in Belgium, looks at whether it’s sensible to consider a different approach to later life.

It’s fair to say that retirement has long been viewed as a panacea for a busy life. After decades of work, and careful financial planning, retirement is the opportunity for you to finally relax and enjoy a life free of stress and responsibility. Yet the idea of a traditional retirement – where your life changes overnight and you give up work completely to dabble in hobbies and a quieter life – is now starting to feel obsolete with only 27 percent of those currently working expecting a ‘hard stop’ retirement. There’s also a greater awareness that retirement can be a huge transition for many people and, like all aspects of change, can be unwelcome and unsettling. So why might it be better to approach your retirement as a more fluid concept?

Longer and healthier lives

Life expectancy is rising around the world so the idea of retiring at 60 or 65 to embark on a quiet and sedate life stage is pretty unrealistic. Added to this is the general health of the population – better diets and more active lifestyles mean that retirement years are likely to be much more dynamic – and longer – than ever before. Simply put a life of leisure and relaxation might not offer a meaningful and fulfilling existence in what could be decades of good health. So perhaps there’s a need to reshape the model of retirement – and how you fund it – to make the most of those years ahead.

Changing legislation

Added to this is the backdrop of how retirement is now supported. There’s now no legally enforced retirement age in place in the UK, so you can continue to work whilst drawing a pension too. The State Pension age is also rapidly rising – for women it jumped from 60 to 65 between 2010 and 2018. And it will undoubtedly rise again – plans are already on the table for a shift to age 68 for men and women. As a result, having that additional income from the State Pension – which can offer a top-up to your own pension pot – might not be a factor until later than you might have expected.

Cost of living

The past few years have provided an insight into just how the long-term effects of the global pandemic are likely to shape living costs. Interest rates and inflation are high, and the cost of living has become a more pressing factor in many people’s lives – even if you’ve carefully built your pension pot. You may be approaching the later stages of your career without the long-term value in your retirement savings you expected to have – especially if you now need it to last for multiple decades. You may also prefer to continue to contribute to longer-term savings before starting to draw down on your investments. Even if you’ve planned well for your later life, it might now be that you need to provide some support to younger generations of your family to help with costs which they might not have foreseen – the housing ladder is less assailable than ever, with larger deposits, higher mortgage payments and childcare costs being a significant factor for younger generations too. All this may add up to you feeling that you can, want and need to continue working. And thinking back to the State Pension there could be an upside to not having to draw it at the statutory age. Even small delays have a positive impact; for every nine weeks you defer, you’ll receive an extra 1%, or around an additional £2 each week. If you defer for a full year, you’ll enjoy 5.8% extra, or £11.82 a week at today’s rates.

Shifting work patterns

Today a successful career offers much more than financial reward. The opportunity to be productive and have a sense of purpose together with the social benefits of being part of a thriving team is an empowering combination. Putting this aside just because you’ve reached an expected retirement age might feel like too much of a sacrifice. With more flexible and agile working now very much the norm, you might not want to give up your career entirely either. It’s also likely that you may have achieved a significant status in your sector. The skills and experience which you can offer are likely to be in demand – and the opportunities to share those through a consultancy role or as a non-executive director could be a rewarding and gainful experience and provide you with additional funds to facilitate your chosen lifestyle.

New horizons

Your later years might also allow you the time and space to embrace new possibilities. For many people retirement needs to be a gradual transition, or even multi-staged, and it might be you’re keen to start to plan ahead – even as early as your 40’s or 50’s – perhaps to buy property abroad in which to spend more time, as well as provide an income stream whilst you’re not using it. Or you might want to enact a career change, study a subject which has always been of interest, or apply your skills to a community project or volunteer role. These choices might then lead to new opportunities or even a new business adventure. Again these life choices might work better when you phase them in, allowing you to enjoy new possibilities during what were traditionally the retirement years.

Mental health and wellbeing

Certain phases of life still come with expectations. As young adults there’s an awareness of the need to embark on a career, start a pension or buy a home. Moving on there are new responsibilities which might centre on raising a family, pursuing work goals or building wealth. These life stages offer structure and meaning, but when it comes to your later years the thought that it’s all about embracing a life of leisure might feel off the mark. If you’re in your 60’s there may be a sense that there must be more to life, and that you want to make the most of the time ahead.

Regardless of how you expect your later years to evolve, it’s likely to be a time in your life where the key driver will be financial freedom, especially if you want the time and space to do what is right for you and your loved ones. Our aim is to help you put in place a financial plan which enables you to realise your hopes and dreams – whatever they look like. To discuss any aspect of your financial planning, including preparation for later life or retirement planning, please get in touch with your nearest office.