Retirement is a significant transition and you might see it as the beginning of a whole new chapter in your life. In the past, the idea of reversing that transition and returning to work may have seemed alien but now, “unretiring” is becoming more common.
According to research from Legal & General published in July 2024, 2.8 million over-50s had returned to work after previously retiring. The reasons for this vary, and if you loved your career, you might consider unretiring because you miss the sense of purpose or the social aspects of the workplace.
However, 37% of individuals who had returned to work said they did so because of increased living costs. You might be similarly concerned about running out of money in retirement and so could be planning to unretire.
While this may be a suitable choice for you, it could be worth considering these five options before you head back to work.
1. Review your retirement budget
Before you make any decisions, it may be useful to review your retirement budget and consider whether your savings are likely to run out. This is because there is a disparity between fears of running out of money, and the number of pensioners who are actually in financial hardship.
For example, IFA Magazine reports that 33% of over-65s are concerned about their savings running out in retirement.
In comparison, figures from the Centre for Ageing Better show that in 2023/24, 18% of pensioners were living in relative poverty after housing costs were deducted. This suggests that it’s common for retirees to overestimate the chances of them spending all their savings.
That said, even if you don’t spend all your savings, you may still find it difficult to sustain the quality of life you have come to enjoy if you don’t have enough in your retirement pot.
As such, you might want to review your budget and consider how much you need to draw from your retirement pot each year to cover your expenses. Using this information, you can then see how long your savings are likely to last in retirement.
In some cases, you might find that your fears were unfounded and you’re able to fund your desired lifestyle. Consequently, you may not need to return to work.
However, if you’re concerned that you could have a shortfall in retirement, there are several ways you could make your savings go further, meaning you don’t necessarily need to unretire.
2. Consider making changes to your lifestyle
After reviewing your retirement budget, you might find that you can’t sustain your desired lifestyle for as long as you hoped. In this instance, you could consider making changes to your lifestyle.
If you cut back in certain areas and reduce your average spending, you could make your retirement savings go further. This might mean you no longer need to unretire.
It’s important to consider what you value most – the lifestyle you want to lead or the freedom to stay retired without going back to work. You might decide that you’re willing to make sacrifices to your lifestyle if it means you don’t need to unretire.
On the other hand, you may prefer to go back to work for a period so you can afford your dream lifestyle in the future.
3. Find ways to mitigate the tax you pay on your pension withdrawals
Reducing the tax you pay on your pension income could help you make your retirement pot last longer.
Normally, you can take the first 25% of your pension as a tax-free commencement lump sum, up to the Lump Sum Allowance (LSA). This stands at £268,275 in 2024/25. Any withdrawals that exceed the LSA are likely to be taxed.
You’ll also pay Income Tax on any withdrawals from the remaining 75% of your pension pot, if you exceed your Personal Allowance (£12,570 in 2024/25). This will normally be combined with other forms of income and applied at your marginal rate.
Fortunately, you might be able to reduce the tax you pay on your pension income in several ways.
For example, many providers allow you to draw from the tax-free and taxable portion of your pension at the same time. We can help you explore ways to strategically use your tax-free lump sum and potentially mitigate tax.
Additionally, if you create a detailed retirement budget and only draw what you need to from your pensions, you can reduce the amount of income that exceeds the Personal Allowance. This could mean you pay less tax.
4. Search for lost pension pots
Before you decide to return to work, it’s worth checking for any other retirement savings that you haven’t considered yet. According to the Association of British Insurers (ABI), there are approximately 3.3 million “lost” pension pots in the UK, with an average value of £9,470.
You might have lost track of your savings if you moved jobs and started paying into a new pension scheme. The savings in the old scheme are still yours, but you would have stopped contributing to the pension.
You may be able to find these lost pension pots by contacting your old employers or using the government Pension Tracing Service, which might give you details of the provider.
Finding any lost pension pots could give your retirement pot a valuable boost, meaning that you can afford to fund your dream lifestyle without returning to work.
5. Book an appointment with your financial planner
If you’re considering unretiring and returning to work, but you’re not sure whether it’s the most suitable option for you, don’t hesitate to get in touch.
We can explore your options with you and use cashflow planning to make accurate forecasts about how far your pension savings could go, taking important factors such as inflation into account.
If you do decide that you want to return to work, we can explain how this might affect your ability to make tax-efficient contributions to your pensions. We can also help you determine the most effective ways to build and manage your wealth.
However, you might prefer to stay retired. In this instance, we’ll help you adjust your budget, potentially mitigate the tax you pay, and search for lost pensions so you can make your retirement pot go further. We may also support you in reviewing your investment strategy, so you can potentially achieve more growth on your savings.
Get in touch
We can help you achieve your ideal lifestyle, whether that means returning to work or not.
Please give us a call on 01276 855717 or email info@braywealth.com today.
Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
All information is correct at the time of writing and is subject to change in the future.
A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.
The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.
The Financial Conduct Authority does not regulate cashflow planning or tax planning.
HM Revenue and Customs’ practice and the law relating to taxation are complex and subject to individual circumstances and changes which cannot be foreseen.
Approved by the Openwork Partnership on 31/12/2024
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