)
Last month, you read about how retirement is changing, with almost half of workers aged over 50 exploring phasing into retirement. There are plenty of reasons why more people are considering a gradual retirement, including the emotional and financial benefits this option could offer.
A gradual retirement could help you retain a sense of purpose and social life
When thinking about retirement challenges, most people focus on having enough to live on for the rest of their lives. The emotional challenges may be overlooked.
Retirement is a significant milestone and can change your lifestyle completely. If you retire on a set date, you may go from a fixed routine to the freedom to spend your time however you wish within a single day. While that might sound like bliss and something you’ve been looking forward to, it’s not uncommon to struggle with it initially.
Some retirees may worry about feeling bored, losing their sense of purpose or missing social connections from work once they retire.
Age UK research from December 2024 demonstrates the challenges some retirees face. It found that 7% of people aged over 65 – the equivalent of around 940,000 people – often feel lonely.
Phasing into retirement could help you retain your sense of purpose and social circle while benefiting from more free time to pursue your passions or simply enjoy a slower pace of life.
Phasing into retirement could support your long-term finances
There are two key reasons why taking a gradual approach to retirement could be beneficial from a financial perspective.
First, if you’re still earning an income, you might not need to draw money from your pension or deplete other assets. As a result, you’ll have more to fund your lifestyle once you give up work completely.
In some cases, your salary will be lower when you’re phasing into retirement, so you might take an income from your pension to supplement it. While you’d be reducing the value of your pension, it’s likely to be at a slower rate than if you weren’t working at all.
Second, you may opt to continue contributing to your pension while you’re transitioning. Again, this could mean your pension is larger when you need to cover more of your expenses in the future.
It’s important to note that if you take a flexible income from your pension, the amount you can contribute tax-efficiently could fall to just £10,000 in the 2025/26 tax year under the Money Purchase Annual Allowance. If you plan to contribute to your pension as you phase into retirement, we can help you assess how to do so tax-efficiently.
Please note: A pension is a long-term investment the fund value may fluctuate and can go down. Your eventual income may depend upon the size of the fund at retirement, future interest rates and tax legislation.
HM Revenue and Customs practice and the law relating to taxation are complex and subject to individual circumstances and changes which cannot be foreseen.
For specialist tax advice, please refer to an accountant or tax specialist.
Taxation is not regulated by the Financial Conduct Authority.
Managing your finances if you’re gradually retiring can be complex. You might be juggling multiple incomes, and you’ll also need to consider how your decisions could affect your long-term security.
Working with your financial planner to create a cashflow model can provide clarity. It’s a useful tool that could help you assess the effect of your decisions, so you can feel confident about your finances.
For example, you might use a cashflow model to see if you have enough in your pension to halt contributions earlier than planned so you can phase into retirement. Or you could see how the value of your pension will change if you withdraw £20,000 annually for five years to supplement your salary before taking an annual income of £40,000 when you stop working.
While the results of a cashflow model cannot be guaranteed, it does provide useful insight to help you make informed decisions about retirement or other financial matters.
Please note: The Financial Conduct Authority does not regulate cashflow modelling.
Contact us to discuss your retirement plan
We can help you create a retirement plan that reflects your lifestyle goals, including phasing into retirement. Please get in touch to discuss the next chapter of your life.
Next month, read about some important financial considerations if you’re planning to phase into retirement, such as when to access your State Pension and how to manage tax liability.
Please note: This blog is for general information only and does not constitute financial advice, which should be based on your individual circumstances. The information is aimed at retail clients only.
HM Revenue and Customs practice and the law relating to taxation are complex and subject to individual circumstances and changes which cannot be foreseen.
For specialist tax advice, please refer to an accountant or tax specialist.
Taxation is not regulated by the Financial Conduct Authority.
A pension is a long-term investment the fund value may fluctuate and can go down. Your eventual income may depend upon the size of the fund at retirement, future interest rates and tax legislation.
The Financial Conduct Authority does not regulate cashflow modelling.
FP36444 – APPROVED BY 2PLAN WEALTH MANAGEMENT ON 24.11.2025
Eden Gate Financial Planning is a trading name of 2plan wealth management Ltd which is an appointed representative of 2plan wealth management Ltd. 2plan wealth management Ltd is authorised and regulated by the Financial Conduct Authority and is entered on the FCA register (www.fca.org.uk ) under reference 461598. Registered office: 2plan wealth management Ltd. 3rd Floor, Bridgewater Place, Water Lane, Leeds, LS11 5BZ. Registered in England and Wales Number: 05998270
Production