25th January 2023
general
Another factor to consider is the shortages in the workforce. Many companies are struggling to recruit skilled people which means that there could be new opportunities for retirees to re-enter the job market.
If you are considering returning to work after retirement, there are a few things you need to consider.
Should You Return to Work?
Returning to work can be a big decision, especially if you have been retired for a few years.
If your financial situation has changed, returning to work might not be a choice. Bereavement or divorce could drastically impact your finances and may mean that you need another source of income urgently.
In some situations, it is less clear. Perhaps you have enough money to live on now, but are concerned about the future. Or maybe you simply want to improve your quality of life. A cashflow model could help with this. You can do this yourself in Excel or using an online calculator. Alternatively, a financial adviser can create one for you. This takes your current income, expenditure, assets, and liabilities to create a projection for the future, making assumptions about inflation and investment returns. It can help you make decisions such as whether to earn more money, spend less, change your investments, or downsize your home. If you do decide to return to work, it can guide you as to how much you need to earn and for how long.
Of course, you may simply be thinking of returning to work because you need a new challenge, in which case the financial implications are less important.
Manage Your Time
It takes some adjustment to settle into retirement as you might find you have more free time than you know what to do with. But gradually, you will find ways to fill your days.
The reverse is also true. If you are busy with family, hobbies, and voluntary work, returning to the workplace may be challenging. You will need to find ways to do more with less time.
Working part time could be one solution as this allows you to maintain your ‘retired’ lifestyle a few days a week. Evening or weekend work may fit in better with your routine, especially if you are helping with childcare during the working week.
There has also been an increase in home-based roles. If you are able to work remotely, avoiding a commute could save time and money.
If you have the skills, you may even be thinking about starting your own business. Of course, this takes time, so is unlikely to be the answer to immediate financial concerns.
Check Your Tax Code
When you start a new job, your employer will need to work out your tax code. This tells HMRC how much you can earn without paying tax. Normally your tax code will be 1257L, which means that you have a personal tax-free allowance of £12,570.
If you have other income, for example, from a pension, your tax code will be different. If your pension income is £10,000 per year, you will only have £2,570 of your personal allowance to set against your employment income. The amount of tax you pay on your earnings will depend on how much other income you receive and whether this has already had tax deducted.
If HMRC doesn’t have enough information about your tax position, you may be put on an emergency tax code. This means you will pay more tax than you should.
If you think you have paid too much tax or need to update your details with HMRC, you can find out more here.
Can You Pay into a Pension?
You can still pay into a pension after you retire, and will still receive tax relief, providing you are aged under 75. Contributions are limited to £3,600 per year (gross) or your relevant UK earnings, whichever is higher. Personal and employer contributions are also capped by the annual allowance of £40,000 per year.
If you are under State Pension age, your new employer will need to automatically enrol you in a workplace pension scheme. You can opt out, but as your employer will also pay into your pension, it can offer a valuable boost to your retirement pot.
If you have already taken flexible benefits from a pension, you will be subject to the money purchase annual allowance. This means that all future pension contributions are capped at £4,000 per year. Tax penalties apply for exceeding this. If this is likely to affect you, it’s worth discussing with your employer as they may be able to cap your contributions.
What About Your State Pension?
If you are due to receive the State Pension, but are still working, you have two options.
You can take your pension on schedule and it will be added to your other income. This means you will pay more tax on your earnings and may be pushed into a higher tax band.
Alternatively, you can defer your State Pension. The amount you receive will be increased by 1% for every 9 weeks of deferral, equivalent to around 5.8% per year.
You need 35 years’ worth of National Insurance contributions to receive a full State Pension. If you are under State Pension age you will continue to pay National Insurance on your earnings, which could improve your State Pension forecast. Of course, you will still need to pay contributions even if you have a full record.
Tips for a Successful Retirement
When you eventually decide to fully retire, a few simple tips could help you stay on track:
Please don’t hesitate to contact a member of the team to find out more about retirement planning.
