Retirement used to be a very well-defined concept – a single day, circled enthusiastically on the calendar, delineating the boundary between decades of work and decades of rest.
In more recent times, this idea of a 'cliff-edge' retirement has waned in popularity and it is now common to see people retiring late; retiring gradually; dipping into and out of retirement; or simply never retiring at all.
Advisers play an increasingly important role in guiding clients through this new, fluid landscape.
Why are people retiring later or 'reverse-retiring'?
There are many reasons why someone might choose to delay retirement or return to work having previously retired.
A common demographic of late-retirees is business owners – understandable, perhaps, since a person’s business is often an extension of themselves, and giving up such an important part of one’s identity can be traumatic.
In these scenarios, advisers may find themselves swapping financial advice for life-coaching. Business owners might also continue to work longer than expected if they want the company to stay in the family but the next generation is not ready to take over the reins.
Other people delay retirement due to worries about how stepping off the 'hamster wheel' might affect their health and well-being.
It is also reasonably common that a couple will try to harmonise their retirement dates, resulting in one retiring later than expected.
There are lots of opportunities here for advisers to provide meaningful support, and it underlines the importance of always considering the wider family picture.
I have also heard tales of people whose pensions are subject to divorce ‘earmarking’ orders and who elect to defer their own retirement to prevent their ex-spouse from accessing their share, although I have yet to encounter this in real life.
There are similarly many reasons why people might return to work having previously retired, and it is seldom purely a financial decision. Some people react badly to the apparent loss of status, or the allure of the golf course wanes faster than expected.
Someone receiving (and acting upon) good financial advice, though, should never have to return to work for lack of funds since regular reviews are there to keep plans on track.
A perhaps less obvious reason for late/reverse retirement derives from the decline in private-sector DB scheme membership over recent decades.
Such schemes were designed for the traditional retirement model: an initial tax-free lump sum followed by a guaranteed, inflexible income for life.
Many DB schemes have not moved with the times and cannot easily be used to support a gradual retirement without creating an unnecessary income-tax liability, as the following example demonstrates:
Claire earns £50,000 a year as a factory manager and is entitled to a DB pension of £25,000 a year when she reaches 65.
During her working life she has not paid any higher-rate income tax as she has always been just below the threshold.