Returning to the workforce: a short guide for retirees
This content is for information purposes only and should not be taken as financial advice. Every effort has been made to ensure the information is correct and up-to-date at the time of writing. For personalised and regulated advice regarding your situation, please consult an independent financial adviser here at Castlegate in Grantham, Lincolnshire or other local offices.
With the cost of living crisis biting into people’s incomes in 2022, it is understandable that many currently in retirement are looking to go back into the workforce. Others may wish to re-enter the world of work for more emotional reasons (e.g. finding a sense of purpose). Whatever the reasons, it is important that those considering “un-retirement” have a firm financial plan in place so their goals are protected. Below, our Lincolnshire financial planners here at Castlegate offer some thoughts on how to navigate this process effectively. We hope this content is helpful. If you want to discuss your financial plan, please get in touch to arrange a no-obligation financial consultation, at our expense:
01476 855 585
info@casfin.co.uk
Why do people “un-retire”?
In general, retired people may go back into the workforce for practical and/or emotional reasons. Presently in 2022, the UK is facing a labour shortage and many companies see over-55s as a vital demographic to fill crucial roles. McDonald’s, for instance, was proactive with recruitment drives over the summer of 2022 to attract older people to vacancies at their UK outlets. Sadly, many people in retirement feel that they have little choice but to pick up work as rising inflation cuts their spending power. In the 3 months preceding June, a record 174,000 people aged 65+ went back into employment. Others might miss the routine of going to work, having colleagues and being active outside of the house.
Benefits and risks of re-entering the workforce
One of the main advantages of un-retirement is that you could boost your income in later life. Perhaps your State Pension is not as strong as it could be. In which case, entering paid work could allow you to build up more “qualifying years” of National Insurance (NI) contributions to increase your future State Pension income (35 qualifying years are needed to gain the full new State Pension). For some, a salary could help to settle certain liabilities that have weighed down their finances in retirement – such as outstanding mortgage debt. Others might simply need the extra income to make ends meet now that prices have risen sharply in late 2022. This can reduce the need to rely on pension income and allow savings to grow, potentially lasting longer.
Heading back to work can also have positive effects on mental health. For many, retirement is a lonely experience and so re-entering employment helps you meet people again and bond with them over common tasks. Interacting with customers (or students) can be rewarding and give you a sense of purpose. However, un-retirement can also be disruptive to the work-life balance you had established. Perhaps you previously spent time with family (e.g. grandchildren) or travelling the world. Some of these long-sought-for goals may need to take more of a back seat with commitments to an employer. You need to think carefully about whether paid work fits with your priorities and how much necessity may require these to be changed.
Thoughts on un-retiring wisely
The emotional and mental health aspects of re-entering the workforce cannot be ignored and are important. However, un-retirement also carries significant financial planning implications that you should discuss with a professional. In particular, your pension contributions may be limited when you pick up paid work after you have already started drawing from your pension. This is due to the Money Purchase Annual Allowance (MPAA) rules, which lower the yearly amount an individual can contribute to his/her pensions to just £4,000. Normally, the annual allowance for pensions is £40,000 (or up to 100% of earnings, whichever is lower).
Therefore, those looking to re-enter work after retirement to build up their pension may find this very difficult. It may be necessary to explore additional saving/investing options if you need to set aside more than £4,000 per year to build up your future retirement income. Your ISA might be a good starting point, where you have a yearly allowance of £20,000 (although you will not be able to benefit from the 25% bonus to your savings with a Lifetime ISA if you are aged over 50). As mentioned, your State Pension will likely be worth attention if you do not have 35 years under your belt. Paid work could provide you with funds to make voluntary National Insurance contributions which could plug “gaps” (incomplete past years) on your record.
Invitation
Picking up paid work in retirement does not need to involve entering full-time employment. It may simply look like a few hours per week – perhaps working a single shift to see how returning to work “feels”. The important step, however, is to make sure that your decisions integrate with your financial plan and goals.
Here at Castlegate, we are here to help clients in Lincolnshire to process the implications of choices like these and present you with the best information. If you are interested in discussing your own financial plan or investment strategy with us, please get in touch to arrange a no-commitment financial consultation at our expense:
01476 855 585
info@casfin.co.uk
