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In this episode of Retire Well with Wealth of Advice, we discussed a growing trend that’s changing the way many people approach retirement—phased retirement. Once, retirement meant a single defining moment: you left work on a Friday and began a new, work-free life on Monday. But that “cliff-edge” style of retirement is now fading. For many, a more gradual shift makes better lifestyle and financial sense.
Recent research by Legal & General suggests that nearly half (48%) of employees over the age of 55 are considering a phased retirement. Whether driven by financial need, a desire for routine and purpose, or just the appeal of easing into a new chapter, phased retirement offers flexibility and control over how—and when—you step back.
Retirement isn’t just a financial transition—it’s a lifestyle shift. For many people, work provides more than a salary. It gives structure, purpose, and social interaction. Easing into retirement by continuing to work part-time can help maintain that sense of purpose while creating space to explore new interests.
Going from full-time work to full-time leisure overnight can be jarring. A phased approach allows you to trial retirement living, re-evaluate priorities, and adjust your time and spending habits gradually.
Remaining in some form of employment means you can delay taking your pension or reduce how much you draw from your savings early on. This can improve long-term financial outcomes and reduce the risk of running out of money in later life.
There’s no one-size-fits-all approach to phased retirement, but here are a few of the common methods we see clients exploring:
Reducing Hours or Responsibility: Whether it’s dropping to three days a week, taking on fewer projects, or shifting to a mentoring or consultancy role, easing off gradually can help you transition smoothly.
Taking a Defined Benefit (DB) Pension Early: Some consider drawing from a DB scheme early while working reduced hours. This can be appealing but may reduce the overall income you receive from the scheme over your lifetime due to ‘Early Retirement Factors’.
Drawing From Your Flexible Pots: In some cases, it might make sense to draw on other assets (such as ISAs or flexible pensions) to allow you to take your DB at normal pension age unreduced. While it may feel counterintuitive to dip into your savings earlier, the long-term benefits can be significant. Using tax-free cash from a defined contribution (DC) pension or drawing from ISAs (which don’t impact your income tax position) can help bridge the gap without pushing you into a higher tax bracket.
There’s more to phased retirement than simply working fewer hours. Here are some of the key planning points to think through:
We usually recommend having 6–12 months’ worth of essential expenses set aside in an accessible savings account. However, if you're still earning part-time income, your actual cash buffer needs may be lower—especially with good planning.
Start your planning early. The earlier you model your income needs and pension options, the more flexibility you’ll have. Consider how long you want to remain in part-time work and whether your employer supports phased retirement.
Many people assume they need to start taking pension income the moment they reduce hours—but that’s not always the case. You may be better off using a combination of:
This approach can help you avoid jumping into a higher tax bracket. Strategic withdrawals from non-pension assets may be more tax-efficient in early retirement.
Once you flexibly access your pension—typically by taking taxable income—you’ll trigger the Money Purchase Annual Allowance (MPAA), which limits how much you can contribute to pensions in future (currently £10,000 per year). That’s a significant consideration if you plan to keep working and contributing.
If you’re in a public sector scheme like the NHS or Teachers’ Pension, phased retirement or “retire and return” options may be available. These schemes often have unique rules, so it’s important to understand how your choices will affect your benefits.
Working part-time could mean your earnings fall below the National Insurance threshold. This could affect your entitlement to the State Pension unless you’re receiving credits (for example, as a carer or through child benefit). You need 35 qualifying years to receive the full State Pension (£11,973 in the 2025/26 tax year). If there are gaps in your record, you may be able to top them up via the government’s online gateway.
Switching to part-time could reduce your workplace benefits, such as:
Make sure you understand what changes when you reduce your hours and weigh those against your overall retirement plan.
Phased retirement offers a flexible, controlled way to step into the next chapter of life. But as you’ve heard in this episode, it also comes with a web of financial and practical decisions.
From deciding when to draw your pension, to managing tax efficiently, to ensuring your benefits are protected—phased retirement needs careful thought and planning. #
At Wealth of Advice, we help professionals like you understand your options, avoid costly mistakes, and build a retirement plan that fits your goals and lifestyle. If you’re considering a phased retirement or would like to explore your options in more detail, we’d be happy to help.
Book a free consultation today and take the first step toward peace of mind.
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