The pros and cons of working in retirement

The word ‘retirement’ may conjure up images of giving up the world of work to tend to the garden full-time, but increasingly people are continuing to work beyond their retirement age. There are a number of reasons people choose to do this, both personal and financial, but what are the pros and cons of working in retirement – and what could they mean for you?

Pros

Keep doing what you enjoy

The most obvious reason to keep working past your retirement age, is that you enjoy your work and want to keep doing it. There is nothing forcing you to hand in your P45 when you reach retirement age and though many people choose this time to step back from work, if you enjoy what you do then there’s no reason to stop doing it. The additional income you receive from your pension may enable you to reduce your hours or work more flexibly if you wish, but you’re under no obligation to do this. It might be that you have a specific project or contract you’d like to see through before stepping back, or it might simply be that you have no immediate intention to retire and would like to keep working foreseeable future. Either way, you’re free to keep working if you want to.

Boost your income

Not everyone can afford to immediately give up work when they reach retirement age and a common reason to keep working in retirement is to boost your income beyond what your pension alone would provide. It might be that this involves working full time, or perhaps taking on part-time work to top up your finances while enjoying more time to do what you want.

Enjoy a bigger pension further down the line

Alternatively, by continuing to work and postponing when you start taking your pension, you can continue to invest in your pension so you are better off financially further down the line. This way when you decide to stop work and take your pension, the pension income you have to live off could be higher than it would have been if you started taking it right away.

No National Insurance to pay

An important, and often overlooked, thing to consider is that you stop paying National Insurance when you reach state pension age. This means that if you continue work, you’ll take home a bit more each month which you’re free to spend or save as you choose.

Keep active and social

Another thing to consider is the sense of purpose and fulfilment, not to mention the social benefits, that work can bring. Retirement can bring huge lifestyle changes and some people will miss the regular interaction with their colleagues, or the sense of structure that work brings to their week.

For this reason, a lot of people take up part time work, or even volunteering, in retirement. This way they can get out of the house and flex their grey matter without the demands of full-time work.

Cons

Time you could spend doing other things

Of course, the biggest con of working in your retirement is the impact this has on your free time. Retirement could give you the opportunity, to pursue your hobbies and passions, or simply to take it easy and live life at your own pace without the pressures of full time work. There are potential benefits to working after reaching retirement age, even if it’s just in a part-time capacity, but this must be weighed up against the potentially life-changing impact that giving up work could have on your personal life and the freedom this can bring. If your financial situation means that giving up work entirely is not a realistic prospect, it’s still worth considering the benefits that reducing your work commitments could bring and measuring this against the financial costs. It is also important to remember that if you take money from one pension and continue paying into other, you may be entitled to less tax relief on the money you pay into your pension.

Commuting and expenses could undercut your income

If you do decide to work part-time to give your income a boost in retirement, it’s worth considering the costs of commuting and the disproportionate impact this could have on your earnings. Many of us don’t think much of paying for a bus or train ticket, or driving for 30 minutes or more to get to our place of work when working full time. But if you are doing a similar commute to work for just a few hours a day, you may suddenly find that your part-time income boost is less effective than anticipated.

If a costly commute is unavoidable, it might be worth consolidating your working hours into one or two days, rather than spreading them over the course of a full week to minimise your travel expenses.

Of course, if you’re looking at part-time work as something to do to keep active, as opposed to something that is important to support your retirement lifestyle, then this may not matter to you as much - but it’s definitely something to bear in mind.

Higher earnings could push you up a tax bracket

If you continue to work full time while also taking your pension, you will receive a boost to your monthly income beyond what you had previously been earning. This can obviously be a huge positive but depending on your income it could have the unexpected effect of pushing you up a tax bracket. In this situation, your extra earnings would suddenly become a lot less impactful than they would otherwise be.

If you’re considering continuing work while taking any work-based pension, it’s well worth paying close attention to what your new income could be, and if this would bring and increased tax bill with it. Depending on your situation, it might be preferable to postpone taking your pension, or reducing your hours so that you can enjoy the full benefits of your pension without paying more to the tax man.

If you’re approaching retirement and aren’t sure what approach is right for you, it might be worth considering getting financial guidance or advice. Click here to find out more.