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Paraplanner views: Transitioning – a better route to retirement?

6 February 2019

A recent article flagged the idea of phased retirement as a new and growing trend. We asked paraplanners whether transitioning rather than take a cliff-edge approach was new amongst clients and whether the evidence suggested it was a better route to retirement and what issues should be considered. 

In a recent paraplanners survey we asked for paraplanner views on recent comments that more people are tending to transition into their retirement, by cutting down their hours or taking on part-time work, rather than stopping work overnight (see survey results at end of this article).

The response was a noted “different approach to retirement now than in previous generations”. The survey showed that transitioning was a trend that had been growing amongst their clients, with 89% of respondents believing more people will start to transition gradually into retirement and 83% already seeing signs of this trend occurring. Only 8% of paraplanners did not believe people will opt for this option over the cliff-edge approach.

The majority agreed transition into retirement would help those not in a financial position to stop outright.

Others felt that longer life expectancy will prompt people choosing to have a “gentle start to retirement” to see how they can manage.

One commented: “Workplaces are also becoming a lot more flexible and the ‘old conventional’ retirement model is becoming a thing of the past, especially given longevity and the fact that final salary schemes are diminishing.”

The introduction of the pension freedoms, and in particularly the ongoing availability of flexi-access drawdown, were seen as crucial to people being able to phase their retirement whilst continuing employment if desired.

Trend among clients

Paraplanners who were already seeing this happening among their clients noted that clients in their early 50s “are looking at how they can start to access pension funds from age 60, for example, so that they can plan to work part-time.”

One said it had “pretty much always been the case amongst our clients” but noted it was starting to take hold among lower net worth clients “who are accessing funds to assist in a slowdown of work prior to state pension coming into play in the future.”

Another said: “We have seen a few clients recently taking this type of approach towards their retirement planning in recent years, mainly to bridge the gap between now and their state pension.”

A fellow respondent echoed the sentiment: “The majority of our clients want flexibility and not just transitioning gradually, but also varying stages of retirement such as active years and slowing down years.”

A better route to retirement?

While noting it would be dependent upon the individual and their means, over three quarters (77%) of paraplanners said they considered transitioning to be a better route to retirement, while 20% said they were unsure and just 3% disagreed.

One respondent commented: “From a financial point of view it puts less strain on pensions/savings as they continue to have some reduced income.”

“It makes financial sense as well as being an easier way to get used to the transition to full retirement. Not just from a financial perspective but also perhaps from a psychological perspective as it is a massive change. People need time to adjust and they are becoming more and more aware of this.”

Another said: “There seems to be a trend of retirees who suffer from depression or loneliness having taken the cliff-edge approach as they have all of a sudden nothing to get up for in the morning. People who have identified very strongly with their work have a harder time with the transition to retirement.”

However, among those who were unsure whether transition was a better option, the overwhelming view was that it was a very personal choice.

One said: “Each client will have their own personal emotional attachment to such an approach when it comes to setting a ‘retirement age’,” while another said it “all depends on the individual client’s circumstances”, making it difficult to say a firm yes or no.

Issues

What was essential, another respondent pointed out, was that “more people are educated to understand the option of a transitional approach exists and how it might work for them.”

And this was an important area in which financial planning could help. “People want the flexibility to retire earlier than the State pension Age but often do not understand fully the risks of investment, longevity risk and sequencing risk.”

Parameters survey results

  1. Do you believe more people will start to transition gradually into retirement rather than take a cliff-edge approach? 

Yes                   89%

No                    8%

Unsure            3%

 

  1. Are you seeing any signs of this retirement trend amongst your clients?

Yes                   83%

No                    12%

Unsure            6%

 

3.Do you believe transitioning is a better route to retirement?

Yes                   77%

No                    3%

Unsure             20%