There has been a wave of stories recently suggesting that people are pushing back their retirement or opting for a ‘phased’ retirement due to the cost of living crisis.
I’m sceptical about how many clients of Financial Planners are actually doing this but there’s no doubt in the wider population that some are rethinking plans and that’s perfectly understandable.
A major new study from L&G this week suggests that 3.3m pre-retirees have started ‘phasing’ into retirement by reducing hours and cutting back responsibilities.
The study also suggests that about half of employees aged 55+ (48%) expect to take a phased approach to retirement rather than completely stopping work soon.
It also found that despite the desire for a phased retirement, one in 10 people who had begun to ‘phase’ into retirement were having to increase their work commitments again to make ends meet and two fifths (40%) of people who expected to be moving into retirement in the next five years now worry living costs might make this plan unrealistic.
There will be many reasons for this change of heart. The rising cost of living is helping no-one, except perhaps cash savers who see their savings rates going up albeit still miles behind inflation.
What is clear is that inflation, long a subdued dragon, is the enemy of saving and investment. If inflation is over 10% and your portfolio is only returning 6% a year you’ve got a problem.
Despite the challenges what is evident is that people are actually showing a good deal of common sense. Keeping on working for a bit longer or opting for a new part-time job to boost income are wise moves if your retirement income is not going as far as it did.
I’ve written many times in the past that where people are fit, able and willing, a complete retirement may not be the best thing for them in any event. Work can help us keep mentally and physically more active as well as boosting quality of life through higher incomes.
In this context phased retirement or semi-retirement makes perfect sense and while some focus on the ‘perfect retirement’ of endless cruises, new hobbies and the like that’s just not going to happen for many who may not want this lifestyle.
Planners who really understand their clients I suspect spend a lot of time talking about what retirement or later life working actually looks like. For some it may even be a new business or career or a charity role or whatever. Keeping active is the key to a long and healthy life and planners can help to make this happen. Many planner clients, I suspect, would hate the idea of enforced leisure. They were, after, often successful business and professional people with active minds. They remain the same people in retirement.
The days of focusing on a complete retirement at age 60 or 65 are beginning to fade and are being replaced with flexi-retirement, a bespoke solution that meets the needs and aspirations of individuals rather than imposing a hard and fast finishing line on everyone.
Pre-retirees are, I suspect, waking up to the idea that a flexi-retirement may actually be what they want and might benefit from in ways which are not purely financial. Phasing may well be the new retirement philosophy driven partly by need but also by desire.
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