Five reasons not to retire
Although many people have little option but to work longer, others may do so to boost their retirement options at a later date. Either way, there are built-in financial pay-offs for retiring later.
You can carry on earning an income, protecting your savings and giving your capital more time to grow. The state pension is more generous for people who defer taking it, paying an extra 10.4% for every full year of deferral.
2. Improved annuity rates
Annuity rates tend to improve for people who retire later. For example, a £100,000 pension fund would currently buy a level annuity income of £5,563 for a healthy man aged 65, but if he bought it aged 70 it would be worth £6,368.
3. Medical conditions
Older retirees are more likely to have developed a medical condition that means they qualify for an enhanced annuity which pay higher rates than conventional annuities.
4. Part-time role
Working into retirement doesn't mean you have to stick with the 9-5. "More and more people will see the benefit of moving to part-time work rather than retirement, or will choose to 'monetise a hobby', taking part of their savings to plug the gap that less work leaves," predicts David Millar, corporate benefits marketing manager at pension provider Friends Life.
He suggests several ways of boosting reduced earnings, including income drawdown, using part of your pension to buy an annuity and leaving the rest invested, using ISA savings, or using one pension and leaving another to grow.
5. Healthy mind, healthy body
Working in retirement isn't just about boosting your income. Research from Prudential revealed that 55% of people planning to retire this year would like to extend their career to keep their mind and body healthy.
Invidivual Savings Accounts were introduced on 6 April 1999 to replace personal equity plans (PEPs) and tax-exempt special savings accounts (TESSAs) with one plan that covered both stockmarket and savings products, the returns from which are tax-exempt. The ISA is not in itself an investment product. Rather, it’s a tax-free “wrapper” in which you place investments and savings up to a specified annual allowance where the returns (capital growth, dividends, interest) are tax-exempt (you don’t have to declare ISAs and their contents on your tax return). However, any dividends are taxed within the investment, and that can’t be reclaimed.
An alternative to an annuity, income drawdown (also known as an unsecured pension) allows you to take income from your pension fund while the fund remains invested and so continues to benefit from any fund growth. The drawdown of income has to be calculated carefully as taking too much income could exhaust the pension fund so experts say the annual drawdown must not exceed what the assets would normally yield in an average year. The invested pension fund could also be hit by market turbulence and the value of the assets could fall.
In exchange for any lump sum – usually your pension fund – an annuity is “bought” from an insurance company and provides an income for life. When you die, the income stops. Annuity rates fluctuate daily and depend on your sex (although from 21 December 2012 insurers will no longer be able to use gender as a factor when calculating annuities), age, health and a number of other factors, so you have to pick the right one and, once bought, its terms cannot be altered, so seek financial advice.