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When it comes to retiring, you might like the idea of ​​stopping work at the earliest opportunity.
But, it can be very financially wise to continue working a little longer.
Do I have to retire at the legal retirement age?
Many people mistakenly believe that they should stop working once they reach retirement age, but they are not.
If you want to keep working – or need to keep working – you can. Forced retirement no longer exists, which means you can usually work for as long as you want.
At the same time, if you are lucky enough to have a sufficient pension, there is nothing preventing you from retiring earlier.
What is the legal retirement age?
The statutory retirement age is the earliest age at which you can start to receive your statutory pension. It may differ from the age at which you can receive an occupational or personal pension. The legal retirement age is gradually increasing for both men and women and will reach 67 by 2028.
Read more: Top five reasons the triple pension lockdown must stay
Steven Cameron, director of pensions at pension provider Aegon, said: “State retirement is the foundation of income for many retirees. While the current debate around the state pension triple lock has shown, it is also extremely costly for the government to provide. Therefore, as people generally live longer, the statutory retirement age is gradually increased to avoid further increases in costs, which are covered by contributions to national insurance for people of working age.
How much will I get at 67?
If you retire at 67 when you receive the state pension, you will receive £ 179,217 ($ 247,155), according to the analysis of the retirement platform Interactive Investor. This assumes that a lump sum of 25% is taken and that you receive an income of around £ 7,000 per year until the age of 85, via a levy. Income withdrawal is a way to get retirement income after retirement while allowing your pension fund to continue to grow.
The average pension pot used in this analysis is based on average earnings (according to the ONS), contributions of 8%, salary growth of 1% per annum, investment growth of 2.5% and fees. annual management rate (AMC) of 0.65%.
Watch: Is a British State Pension Sufficient to Survive Retirement?
What happens if I work an extra year?
If you work another year and retire at 68, you will receive £ 185,755 and an income of around £ 7,500 per year up to age 85, by deduction.
What if I retire even later?
Analysis by Interactive Investor, based on the same assumption as above.
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Retire at 67 and you will get £ 179,217 – an income of around £ 7,000 per year until age 85 by direct debit
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Retire at 68 and you will get £ 185,755 – an income of around £ 7,500 per year until age 85 by direct debit
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Retire at 69 and you will get £ 192,412 – an income of around £ 8,000 per year up to age 85 by direct debit
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Retire at 70 and you will get £ 199,191 – an income of around £ 9,000 per year up to age 85 by direct debit
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Retire at 71 and you will get £ 206,095 – an income of around £ 10,000 per year up to age 85 by direct debit
Becky O’Connor, Head of Pensions and Savings at Interactive Investor, said: “If you continue to work until age 71, you will receive an additional £ 20,000 on your retirement. This is if your salary continues to increase and you continue to work the same hours.
What if income drops?
In reality, earnings and hours worked tend to decline in the sixties. So how would that be in terms of working after retirement?
O’Connor said: ‘If we assume that from the age of 60 a person’s income drops from a high of £ 36,000 to £ 25,000 – pretty much in line with what they started in their twenties – but continued to work, as above, past 67 the figures would be £ 170,088 at 67, rising to £ 191,285 at 71. “
Read more: Working from home keeps older workers at work longer
Here is the breakdown:
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Retire at 67 and get £ 170,088
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Retire at 68 and get £ 175,244
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Retire at 69 and get £ 180,494
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Retire at 70 and get £ 185,840
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Retire at 71 and get £ 191,285
Even if your income drops in your 60s, it’s still worth it to keep working and contributing to your pension, if you can.
O’Connor said: “Obviously not everyone will be able to continue working; poor health and other commitments often get in the way. Most importantly, there is nothing in the rules that says you can’t continue working past the statutory retirement age if you want to, which dramatically increases your eventual pension fund in the process.
What’s the point?
While the numbers may sound compelling, you might be asking yourself, “What’s the point of increasing my retirement if I’m just going to work until I give up?”
Read more: Why the phrase “compensation is competitive” could be a harbinger
Reasons for continuing to build your fundraiser include the possibility of leaving a legacy for loved ones, while many people of public retirement age wish to continue working as it gives them meaning in their mission, allowing them to get more out of their retirement when the time comes. .
Be aware of the MPAA
If you access your retirement income through direct debit after receiving a lump sum at age 55 (soon to rise to age 57), then your contributions will be subject to the Annual Money Purchase Allowance (MPAA).
This means that the maximum you can contribute to your pension in a year goes from the annual allowance – which is £ 40,000 or your maximum income – to £ 4,000.
In the examples shown above, which are average earnings and contributions, this would not be a problem as the person contributes less than £ 4000 per year (at 8% of their salary).
However, if someone wants to contribute more than £ 4,000 once they start accessing their private pension, they could be caught off guard, especially if they are already claiming the state pension and are in the process. able to save more.
Watch: When should I start contributing to a pension?
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