Traditionally, retirement has been seen as a “cliff edge” – you progress through a full-time career until your desired retirement date and then stop working entirely.

But, as your retirement approaches, you might find that you’re not ready to fully commit to the next phase of your life. If so, you won’t be alone.

Retirees are increasingly choosing a more flexible approach to retirement, including a “phased retirement” – stepping back from work gradually – and even “unretirement”, which sees those already retired returning to the workforce.

With that in mind, continue reading to discover how both phased retirement and unretirement work and how each could benefit your emotional and financial wellbeing.

“Phased retirement” involves gradually shifting into the next phase of your life

As you approach your desired retirement date, you might find you’re not prepared to stop working altogether.

If you feel this way, then a phased retirement could be the answer. Sometimes referred to as a “flexi-retirement”, it allows you to scale back your hours or responsibilities over time by moving to part-time work or into a consultancy role.

A phased retirement has some clear financial advantages. Continuing to earn an income means you might not have to dip into your pension immediately, helping your savings last longer. Equally, you might decide to keep contributing to your pension, with the benefit of potential tax relief and employer contributions bolstering your fund.

This could be an especially smart move given that UK life expectancies are rising. The Office for National Statistics reveals that men aged 65 in 2023 could expect to live, on average, a further 19.8 years, or 22.5 years for women. By 2047, this is expected to rise to 21.8 and 24.4 years, respectively.

This could mean your pension must cover a 20-, 30-, or even 40-year retirement. So, keeping it growing could help it last.

If you do continue contributing to your pension, it’s vital to be aware of the Money Purchase Annual Allowance (MPAA).

As of 2024/25, you can normally benefit from tax relief on contributions up to the value of the Annual Allowance, which stands at £60,000, or 100% of your earnings, whichever is lower. This includes third-party contributions, as well as tax relief.

However, if you’ve already started drawing from your pension you might’ve triggered the MPAA, reducing your tax-efficient contributions to £10,000.

There are some notable emotional benefits of continuing to work into your retirement

Rather than stopping work overnight – which you may find jarring – continuing to work part-time or as a consultant, say, could ease you into your new life.

This might be especially important if your former career was a significant part of your identity. Stepping away entirely might feel as though you’re giving part of yourself up.

Loneliness and boredom can quickly set in if work was your main source of social contact.

A 2024 report from Age UK found that 940,000 people aged 65 and over often feel lonely, and as many as 270,000 in England regularly go an entire week without speaking to a friend or family member.

Continuing to work in some capacity could help you keep a sense of routine and achievement, with the added benefit of more flexibility than full-time work, so you can make more time for yourself.

Even if you’re fully retired, you might opt to return to the workforce in a new capacity

If, after retiring, you miss the routine or social life of your former career, “unretirement” may suit you. This involves returning to some form of work while still allowing time for yourself.

Like a phased retirement, unretirement has emotional and social benefits, keeping you connected, purposeful, and active.

Financially, it can also provide some extra income if your pension doesn’t stretch as far as you expected, or if you desire more breathing room in your budget.

Unretirement has tax implications, though. If you’ve started drawing an income from your pension and then start receiving a paycheque again, combining these earnings could push you into a higher Income Tax bracket than expected.

Get in touch

As you can see, your retirement plans don’t have to be set in stone and at Optimum Path, our team of expert financial planners can help you figure out which approach to retirement suits you best.

We will assess your retirement savings, calculate how long your pension might last, and then help you determine whether continuing to work in some capacity is feasible and tax-efficient.

Be sure to contact us now to find out how our Chartered financial planners can help.

Please note

This article is for general information only and does not constitute advice. The information is aimed at retail clients only. All information is correct at the time of writing and is subject to change in the future.

Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance. The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts. The Financial Conduct Authority does not regulate tax planning.