If Covid-19 has delayed your retirement plans, you’re not alone.
A report by the Institute for Fiscal Studies found 8% of older workers are planning to retire later than intended. For many, it’s a way of making up for a fall in their pension wealth.
If you had your heart set on retiring during Covid-19, having to work for longer might come as a blow. But it’s not necessarily as bad as you think.
Delaying your retirement could benefit you and your finances. Read on to find out why.
You can save for longer
Pushing back your retirement will enable you to save money for longer. And it’s not just your pension contributions that will continue.
Every time you pay into your pension, the government adds 20% tax relief. This means a £1,000 pension contribution only costs you £800. Higher-rate and additional-rate taxpayers can claim a further 20% and 25%, respectively. It’s a highly efficient way to save for your retirement.
You can continue receiving tax relief on pension contributions until you reach age 75.
If you’re employed, you’ll also receive pension contributions from your employer. This could boost your pension pot even further.
Your pension has longer to grow
The longer you leave your pension invested, the longer it has to grow. If you’ve had your pension for several decades, leaving it untouched for a few extra years could make a big difference.
Of course, there’s no guarantee your investments will grow. But keeping your pension invested might be wise if its balance has fallen during the pandemic. There’s a chance that as markets recover, so will your pension.
Your retirement money won’t need to last as long
The longer you work, the less time your retirement money will need to last.
It’s easy to underestimate how long you’ll spend in retirement. Life expectancy has risen considerably over the past few decades.
According to the Office for National Statistics, a 65-year-old man can expect to live an additional 18.8 years. For a 65-year-old woman, it’s 21.1 years. This is a big increase from the early 1980s, when the figures were 13 and 16.9 years, respectively.
A 65-year-old man has a 2.9% chance of living to 100, while a 65-year-old woman has a 4.9% chance. Your retirement money might need to last around 30 years.
You could get a bigger State Pension
If you delay your retirement past your State Pension age, you could consider deferring your State Pension.
For people who reach State Pension age on or after 6 April 2016, the State Pension rises by 1% for every nine weeks you defer. This works out as just under 5.8% for every 52 weeks.
If you qualify for the full £175.20 per week and defer for one year, you’ll get an extra £10.16 a week. This equates to an additional £528.31 for the year.
Working for longer could boost your wellbeing
Working for longer could also have non-financial benefits. For many people, work gives them a sense of purpose, which is important for mental wellbeing. Work also provides mental stimulation and the chance to socialise.
The Institute for Fiscal Studies survey found many people who had pushed back their retirement were working from home. It suggested new working practices made staying in work easier or more appealing.
Working past traditional retirement age is becoming more common. Some people take a phased retirement by reducing their hours over time. According to the Office for National Statistics, the average age men leave work rose from 63.3 years in 2000 to 65.2 years in 2020. For women, it increased from 61.2 to 64.3 years.
Seek financial advice
If you’re considering delaying your retirement or are retiring during Covid-19, speak to a financial adviser.
They will check the overall value of your pensions and investments. This will help you to decide whether your desired retirement age is feasible. They’ll also explore other ways of boosting your retirement fund. And they’ll make sure your money is working as hard as it should be.
Get in touch
If Covid-19 has delayed your retirement plans, please get in touch. We’ll explain your options and produce a personalised plan to put you back on track. Please visit our website or contact us at firstname.lastname@example.org for more information.
A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The value of your investments (and any income from them) can go down as well as up which would have an impact on the level of pension benefits available.
Your pension income could also be affected by the interest rates at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances. Levels, bases of and reliefs from taxation may change in subsequent Finance Acts.