Should I delay my retirement?

For many people awaiting retirement, the day when they can finally say hello to rest and relaxation cannot possibly come soon enough.

For others, the prospect of planning for retirement is a daunting one, as it represents a financial sacrifice or even a lack of purpose.

In these kinds of situations, delaying retirement for a little longer may seem like the ideal solution. Delaying retirement has some great benefits, but for some, waiting just simply isn’t an option.

If you feel as though delaying retirement could be the best way to go in your current position, it is worth taking a look at the benefits that it could provide you with.

Your savings don’t have to last as long

If you’re in work for longer, you won’t have to make your savings last you as long, as your wage will have you covered, all while your pension pot continues to grow.

It can be difficult to work out how big you’ll need your pension to be since there’s every chance that you’ll live for much longer than you accounted for. Delaying your retirement when asking yourself the question, ‘when should I retire?’, therefore also delays the time in which your pension needs to be utilised, allowing you to potentially reduce the amount of money you’ll need to see you through to the end of your life.

You can benefit from compound interest

Compound interest is essentially interest on top of any interest your savings have already generated, which can equate to a huge amount of extra money over time.

The longer you leave your pension invested, the greater this compounding effect becomes. If you’re also able to contribute to your pension pot, you can get the most out of compounding, and thanks to the 20% tax relief benefits a pension provides, you will end up making money every time you pay in.

Delaying your retirement to continue working gives you more time to benefit from both the government’s tax relief top-ups on your pension and your employer contributions. At the same time, your existing pot generates more compound interest.

You could use drawdown efficiently

You could use the drawdown method (withdrawing some of your pension as and when you need it and leaving the rest invested) to enable you to retire in stages, allowing you to keep working part-time and topping up your pension with your income.

Planning for the future

It’s worth thinking about the impact that delaying your retirement could have on your plans for the future.

For example, while it may be a great way for you to boost the value of your pension pot, it may not be suitable for those who are starting to suffer from reduced mobility as a result of their old age.

It’s important to think about what you want to do in retirement when planning for retirement and, as always, how much money you’ll need to achieve your ideal vision of a future away from work.

Types of pensions

If you have a defined contribution pension plan (the most common type of pension), then it’s worth remembering that you don’t have to take from your pension until you need it. You can leave it invested to carry on growing even when you reach the eligible age to withdraw it.

Conversely, defined benefit pensions may have a maximum age at which you’re able to take your benefits by. This is typically 75, but it may differ depending on your personal plan, so make sure you consult your provider or your HR department if you’re unsure.

It is also possible to defer your state pension, which according to the GOV.UK website, will enable it to grow by 1% every nine weeks you choose to defer. It’s always worth reaching out to an expert financial advisor before you make any big decisions regarding your savings.

Not sure what the difference between defined contribution and defined benefit is? Read here. 

Disclaimer 

The content of this article is for general information purposes only and should not be construed as legal, financial or taxation advice. You should not rely on the information contained in this article as legal, financial or taxation advice. The content of this article is based on information currently available to us, and the current laws in force in the UK. The content does not take account of individual circumstances and may not reflect recent changes in the law since the date it was created. It is essential that detailed financial and tax advice should be sought in both jurisdictions and any legal advice, if required.

This notice cannot disclose all the risks associated with the products we make available to you. When making your own investment decisions it is important you understand that all investments can fall as well as rise in value and it is possible you may get back less than what you have paid in. You should also be satisfied that any investments you choose are suitable for you in the light of your circumstances and financial position. You should seek financial advice if you are not sure of what’s best for your situation.