Cost-of-living crisis scuppers retirement wind down plans
Millions of workers over the age of 55 have started a phased retirement journey, but with reduced income amid the cost-of-living crisis, many are rethinking their wind down plans.
A third of people aged 55 and over who are in some form of work have already started their retirement wind down journey, equating to 3.3 million employees.
According to the research from Legal & General, 54% who are taking a phased approach to retirement are working 15+ hours less every month. This means they’re earning £9,150 less every year.
Two out of five (38%) said they would need to adjust their lifestyle to compensate for the lower income, while 17% said they expect to struggle to meet the cost of household essentials.
For one in 10 people who already started to kick back, they have had to increase their work commitments again, L&G revealed.
Meanwhile, 40% of people who anticipated gradually moving into retirement in the next five years now worry living costs may make this plan unattainable.
It said its study reinforces the idea that “retirement is no longer a line in the sand”. Almost half (48%) of all employees aged 55+ expect that they will cut down the amount they work rather than completely stopping, with one in seven (14%) planning to wind down in the next year.
L&G found that many people want to take the phased retirement route by reducing their hours, so they can keep their job but lessen their stress (37%).
However, most people make the decision because they simply can’t afford to fully retire fully (44%).
Separate L&G data found the average income on an average pension pot (£73K) for a fixed term annuity (FTAs) taken out by someone aged 55 is £9,000 per year “which could bridge the £9,150 income gap caused by a phased approach to retirement”.
It explained that an FTA lets you use your pension pot to buy a guaranteed income, but for a specific period of time, with a lump sum at the end. “This gives greater flexibility for those who want to bridge their income until another source of pension income kicks in”, it added.
‘Actively managed retirement approach’
Lorna Shah, managing director of retail retirement, Legal & General retail, said: “The number of pre-retirees considering a gradual or phased move into full retirement shows how much the perception of later life has changed in recent years. However, people choose to approach retirement, it’s important they see it as something that should be actively managed, and not something they already feel they are ‘in’ or have ‘done’.
“For those wanting to keep their options open, while also looking for ways to supplement their income, flexible products such as fixed term annuities can play an important role. They provide a guaranteed income for a set time – in some cases as little as three years, helping to bridge any potential gap in salary.
“Most people find it challenging to navigate retirement at the best of times. With the increased pressures applied by the cost-of-living crisis, their money must go further than it ever has done. Ultimately, the key thing is to make sure people are making well informed decisions about what works best for them.”