Is a “semi-retirement” the right thing for you amid high living costs?


Older lady working

As the cost of living crisis continues and life expectancies rise, there’s a good chance you may need to think about saving more for retirement to support your desired lifestyle when you stop working. 

One of the possible solutions to this is a “semi-retirement”, which could see you remain in work in some capacity to supplement your pension earnings. It can also have social and emotional benefits.

According to PensionsAge, semi-retirement has been growing in popularity in recent years. In fact, they report that 44% of 55 to 64-year-olds plan to move into a semi-retirement before they reach 65 to allow them to draw on their pension savings while continuing to work part-time. 

Part-time work is only one avenue for a semi-retirement, so continue reading to find out precisely what semi-retirement entails, and the benefit and potential downsides of this approach. 

Semi-retirement allows you to work fewer hours, or find a more fulfilling line of work

Semi-retirement is essentially how it sounds – instead of going from full-time work to dropping out of the workforce entirely, you choose to transition to fewer hours, or leave a demanding job for something less stressful and more fulfilling. 

There are several distinct types of semi-retirement, including:

  • Switching from full-time to part-time – this is potentially one of the easiest ways to semi-retire. Doing so allows you to relax slightly by taking on fewer hours, while still earning and contributing to your pension fund. 
  • Becoming a consultant – you could become a consultant in your old line of work, typically resulting in fewer hours. 
  • Working from home – the advancement of work from home technologies since the Covid-19 pandemic has made this a viable option. You could work from the comfort of your home, taking some of the stress out of a long commute or long hours. 
  • Starting your own small business – you could turn a hobby or passion into a small business. 

Semi-retirement could make your pension pot last longer, and even improve your quality of life

The cost of living has been on the rise in recent years, meaning you may need to work later in life to fund your entire retirement. A semi-retirement could, in fact, provide you with more income, or even help make your pension last longer. 

Pension Freedoms legislation in the UK allows you to flexibly access your pension from age 55 (rising to age 57 in 2028). Since a semi-retirement allows you to continue earning an income, it could also mean you’ll need to take less money from your pension fund. As a result, you could sustain your desired lifestyle during retirement for longer. 

Also, since more of your savings will remain invested, you could potentially benefit more from compound growth. 

Better yet, when you retire fully, you may have saved more money overall since you’ll continue to make additional contributions from your earnings. This could provide you with a higher income and a better quality of life since you may have built up a larger fund.

It’s also worth remembering that, as life expectancies continue to rise, you may need more saved to support your desired lifestyle during retirement.   

In fact, the Office for National Statistics reports that baby boys born in 2020 in the UK can expect to live to age 87.3, while baby girls are expected to live until an average age of 90.2. Your retirement could last for 20, 30, or even 40 years!

Money aside, continuing to work may simply keep your mind active as you get older. A semi-retirement could be great for longevity and quality of life, as it could help you maintain your mental faculties and increase your social interaction. 

AgeUK say that participating in social activities may help you maintain your thinking skills in later life and slow down cognitive decline. While it’s difficult to properly gauge how social engagement affects brain health, it seems as though people who remain socially engaged have a lower risk of dementia. 

As for general mental health, Forbes reports numerous studies that indicate stopping work can exacerbate mental health challenges such as anxiety or depression. Thankfully, stimulating activities, such as a part-time job or a new business started as a passion project, seem to keep your mind sharp.  

While semi-retirement has many options, one of the biggest issues is that, since you won’t be fully retired for several more years, you won’t be able to do whatever you want, whenever you want. So, you may have to rethink the plans you had for this phase of your life.

It could be difficult to head off on a world tour if you still have work commitments! 

It’s essential to take the Money Purchase Annual Allowance into account when considering semi-retirement

Another important consideration when it comes to semi-retirement is the Money Purchase Annual Allowance (MPAA). 

This affects you if you want to continue to make contributions to your pension pot from your earnings having already flexibly accessed your pension fund. It reduces your Annual Allowance – the amount you can contribute tax-efficiently each year to your pension – from £60,000 to £10,000 in the 2023/24 tax year.

You normally trigger the MPAA if you:

  • Take your entire pot as a lump sum or start to take multiple lump sums
  • Transfer your pension money into a flexi-access drawdown and start to take an income
  • Buy an investment-linked or flexible annuity. 

It’s worth noting that the MPAA rose from £4,000 to £10,000 in the 2023/24 tax year. This could actually be a good thing for semi-retirement, as the increase may allow you to make more tax-efficient contributions while flexibly drawing your pension income. 

Get in touch

Semi-retirement is just one viable option to make your pension fund last longer during retirement.

To find out more about how you can make the most of your retirement savings, please contact us via email at or call 0115 933 8433.

Please note

A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates and tax legislation may change in subsequent Finance Acts. 

The Financial Conduct Authority does not regulate Tax Advice.