“When are you going to retire?”
It’s a common question you may have been asked, and at some stage it’s one you’ve probably asked yourself.
Compared to previous generations, the answer many people give these days is not as clear cut as it may have been before.
For example, an obvious answer to that question for our parents would have been when their State Pension started. Now, with amendments to State Pension Age, that is likely to no longer be the case.
Likewise, Pension Freedoms legislation makes taking retirement income from your pension fund more flexible, meaning that the date you choose to stop work can be equally flexible.
I recently read a book that adds an extra dimension to the decision of when you want to retire.
The concept of a “victory lap”
In the book, Victory Lap Retirement, three financial experts Mike Drak, Rob Morrison, and Jonathan Chevreau outline the benefits of creating a clear period of demarcation between full-time work and complete retirement.
The book imagines your working life as a race and suggests that you should consider the next short phase of your life as a victory lap, rather in the manner of a winning Formula 1 driver slowly going round the track, revelling in the adulation.
So, rather than simply stopping work one day and starting your retirement the next, it suggests that you create a period when you combine work and leisure between the time you quit a full-time job and stop work entirely.
If you’re financially comfortable, you could have a range of victory lap options
The authors suggest that, if you’re in the happy position of being financially comfortable as you approach retirement, you’ll have the luxury of working because you want to, not because you have to.
You can then make the most of your acquired experience and knowledge to play to your strengths and work on your own terms, doing something you enjoy.
Some options you might want to consider include:
- Working on a consultancy basis
- Continuing with the same job, but on reduced hours
- Working in the same industry but with a different company.
Alternatively, you might want to put your experience and skill to good use in a different sector entirely.
You may have seen this idea referred to elsewhere as a “phased retirement”. Indeed, the idea is becoming increasingly popular with fewer workers now choosing to give up work on a set date.
In fact, according to Legal & General figures, 34% of over-55s that haven’t given up work yet are gradually phasing into retirement.
Assess your current financial position
Part of your victory lap planning should include an assessment of the financial implications. This is particularly the case if your victory lap will involve a reduction in your income.
You’ll need to look at your financial plan to see how your proposed new scenario could affect your income and expenditure.
At the same time, you should also consider any upcoming financial commitments that you may become liable for in the near future.
As well as understanding the effect of a change of income, you will also need to assess whether you will have to start drawing from your pension fund.
A victory lap is about more than money
It’s important to realise that the idea of a victory lap is focused more on the beneficial effect it could have on your lifestyle and wellbeing than on your finances.
Throughout your working life, it’s likely that you had to live with a lot of finance-related stress. Issues such as paying your mortgage, the rising cost of living, and paying for your children’s education may have preyed on your mind. That could have resulted in you seeing your working life in terms of something that needed to be done to pay the bills.
With those concerns now removed, you may well find yourself enjoying work more than you have done previously, especially if you’ve taken the opportunity to carve out a new role for yourself that plays to your strengths.
It’s important to find the right balance
The final decision of how you fulfil your victory lap will be down to you.
As with many choices where finance is an issue – although in this instance not an overbearing one – there’s no one-size-fits-all solution. You need to find a balance between work and home that’s right for you.
In terms of how long your victory lap should last, if you’re enjoying your new lifestyle you may want to consider postponing your final retirement for some time.
After all, continuing to work in some capacity means you may be able to continue to save for your eventual retirement.
Furthermore, if you’re receiving an income and enjoying an easier work routine, you may be able to simultaneously start ticking off some items from your retirement bucket list.
You’ll also be keeping your mind active and maintaining some of the social and lifestyle aspects that can make work rewarding.
Potential financial issues mean it’s important you get expert advice
Even if you are in the position of being financially comfortable while you’re taking your victory lap, there are some monetary issues you should be aware of.
These could include:
- Whether you need to start drawing income from your accrued pension fund
- How taking income from your pension could affect how much you can continue to contribute to your retirement pot
- Planning your income effectively to minimise the amount of tax you pay.
Because of this, it’s worth getting expert financial advice when you’re thinking about your victory lap to help you avoid decisions that could affect your future financial wellbeing.
Get in touch
If you’d like to talk through any of the issues you’ve read about here, then please get in touch.
You can call me on 07769 156 250.
A pension is a long-term investment, not normally accessible until 55 (57 from April 2028).
Accessing pension benefits early may impact on levels of retirement income and your entitlement to certain means tested benefits. Accessing pension benefits is not suitable for everyone. You should seek advice to understand your options at retirement.
The value of your investment (and any income from them) can go down as well as up which would have an impact on the level of pension benefits available.
Past performance is not a reliable indicator of future performance.
The tax treatment of pensions in general and tax implications of pension withdrawals will be based on individual circumstances, tax legislation and regulation, which are subject to change in the future.
Foster Denovo Limited is authorised and regulated by the Financial Conduct Authority.