Self-employment in retirement
65 is the new 35, and many of us are finding that we’re not quite ready to stop working when we hit retirement age. There are, of course, valid financial reasons for deciding to work longer. Many of us are expecting to live longer, and so being able to keep ourselves in a comfortable lifestyle for longer is an attractive prospect.
But more than that, work is a source of fulfilment to many people. It keeps us social and active both mentally and physically.
Having worked hard all our lives, when we hit retirement, most of us aren’t exactly aching to keep doing full-time, 9-5 hours in stressful jobs. A survey by Merrill Lynch found that only 5% of those at retirement age wanted to work full time, while 33% said they wanted to balance work and leisure.
The answer to this, for increasing numbers of people, is life as a contractor. This gives them greater flexibility over where and when they work, while still offering many of the perks mentioned above. They can still enjoy the delights that retirement has to offer – holidays, time spent on hobbies, seeing more of the grandchildren – but can do so while continuing to earn. It also helps fight off the boredom and loss of purpose that some people experience once they stop working.
You could even, as many people do, contract on projects for the company that you worked for before retirement, but you’ll probably want to use your contacts and networks in your industry to drum up additional business too. With a whole working lifetime of skills and experience behind you, it’s definitely possible that you will be able to earn more as a contractor higher than you could as an employee.
It’s good news on the pension front too. Even if you are working, you can still claim your state pension in the usual way, though it is taxable along with the rest of your income. Or, you can choose to defer the state pension payments, meaning that you will be able to claim a higher amount later.
If you have been paying into a private pension, you can start to claim payments from this even if you are still working, but you can’t pay into the same pension fund that you are drawing from. Again, this counts as taxable income. Like a state pension, you can choose to defer taking payments from a private pension but whether this is a good idea or not depends on the type of pension you hold.
As a general rule, there is little benefit in deferring if your pension is final salary or defined benefit, but deferring a defined contribution pension may mean you have a bigger pension pot when you decide to fully retire. It’s best to chat this through with your financial advisor to make sure you are making the right decisions.
If you do decide to switch from employment to a contractor role at retirement, there are plenty of things to consider. How will you attract clients? How many days a week would you ideally like to work? Remember that if you are working for yourself, you will no longer be covered by an employer’s insurance policies, so taking out cover to protect yourself is essential.
You can get a quote for Kingsbridge’s simple, compliant, comprehensive insurance for contractors simply by calling 01242 808740. Once that’s in place, you can relax, and begin to enjoy your new, flexible retirement, with a little bit less work and a little bit more fun.