To research1 of Legal & General found that 34% of pre-retirees2 (people aged 55 and over who are still in some form of work) have already begun to gradually retire, which equates to 3.3 million3 employees.
The study reinforces the idea that retirement is no longer a line in the sand. Almost half (48%) of all employees aged 55 and over expect to reduce their working hours rather than stop altogether, and one in seven (14%) plan to retire the year next.
Many people want to take the phased retirement route by reducing their hours, so they can keep their jobs while reducing their stress (37%), but most people revealed that they make this decision because they don’t simply cannot afford to fully retire (44%).
Table 1: When asked how people planned to stagger their retirement, the most common answers were:
|How people phase in retirement||% of pre-retirees|
|Reduced working hours compared to a previously full-time position||18%|
|Taken as a freelancer to work fewer hours||14%|
|Create my company to allow a reduction of my hours||11%|
|Agree on a reduction in your role with your boss||8%|
Source: Legal and General, 2022
On average, more than half (54%) of all people taking a phased approach to retirement are working more than 15 hours less each month, therefore earning £9,150 less each year. As a result, many expect to have to adjust their lifestyle (38%), and some even predict that they might struggle to afford the cost of essential household items (17%).
Despite plans to slow down at work, the cost of living has had an impact, with one in 10 people who had begun phased retirement having to increase their work commitments again. Moreover, two-fifths (40%) of people who planned to phase out retirement over the next five years now fear that the cost of living will make this plan impossible.
Legal & General internal data shows that the average income on an average pension pot (£73,000) for a fixed term annuity (FTA) taken out by a 55-year-old is £9,000 a year – which could bridge the £9,150 income gap caused by a gradual transition. approaching retirement. An FTA allows you to use your retirement pot to buy guaranteed income, but for a fixed period of time, with a lump sum at the end. This gives greater flexibility to those who want to bridge their income until another source of pension income comes into play.
“The number of pre-retirees considering a gradual or gradual transition to full retirement shows how much the perception of the end of life has changed in recent years. However people choose to approach retirement, it’s important that they see it as something that should be actively managed, not something they already feel like they’re “in” or into. have done “.
“For those who want to keep their options open, while looking for ways to supplement their income, flexible products such as term annuities can play an important role. They provide guaranteed income for a fixed period – in some cases as little as three years, helping to bridge any potential wage gap.
“Most people struggle to manage their retirement at the best times. With increased pressures from the cost of living crisis, their money has to go further than it ever has. Ultimately, the key is to ensure that people make informed decisions about what is best for them.
Lorna Shah, Managing Director of Retail Retirement, Legal & General Retail
To help people reclaim their retirement, Legal & General has created a “Reclaim Retirement” hub, which includes free resources to help people better understand their options.