If you are wondering whether you might need to review the date when you plan to retire, go part time, or take on lower paid work, you’re not alone – and with good reason as the financial goalposts keep being moved.

What a difference a year makes. Last year, the media was full of stories about “The Great Retirement” as hundreds of thousands of people made an early exit from the workforce. Now, as the cost of living catches up with huge swathes of the population, the swing door is going in the opposite direction, and we have “The Great Unretirement” going on. The Office for National Statistics (ONS) has just reported that the number of people aged under 64 who are in retirement fell by 93,000 in the 12 months to March.

And while the Government might like to claim that their exhortations for early retirees to foreswear the golf course have worked the trick, inflation overtaking income rises is far more likely responsible. New figures released by Independent Age in June showed that 1 in 7 people over 65 are now using loans to survive, as the cost of bills, food and other goods and services continue to spiral.

Dire warnings

Dire warnings are also being sounded about how those taking early retirement could face problems further down the line as the value of their investments and savings falters.

New modelling by the Pensions Policy Institute (PPI), published following a joint roundtable with Age UK on economic inactivity among older people, shows that many of those returning to the workforce after taking time out – as well as others in their 50s and early 60s who left work during or following the pandemic and who haven’t returned – could find that a comfortable standard of living in later life has moved further away from them.

The PPI modelling shows that someone on the National Living wage would need to find £26,000 to support themselves at their usual standard of living if they left work for two years, and a higher earner may need around £60,000. Some people may take this money from their pension pot and reduce their later pot level. In addition, someone on the National Living Wage could miss out on around £6,000 of pension contributions.

Pots being accessed early

Another factor is the need of some older people who are feeling the pinch to draw down their defined contribution (DC) private pension funds just to keep going financially now, thereby reducing the amount available to fund their retirements later on.

The PPI paper shows that more DC pension pots are being accessed for the first time than previously, revealing a year-on-year rise of 18% – potentially having a significant impact on people’s retirement savings.

Cost of living “driving a coach and horses through people’s plans”

Caroline Abrahams, Charity Director at Age UK, said: “The cost of living crisis really is driving a coach and horses through many older people’s retirement plans.

“As the cost of living crisis continues to exact a heavy toll, we think the Government needs to provide more generous financial support for people who cannot keep working until they become eligible for their State Pension, as well as increasing access to training and flexible working for those who can. Policies like these would make a big difference to this age group and help our economy too.”

Using pension pots early “could have serious consequences”

John Adams, Senior Policy Analyst at PPI, added: “Modelling undertaken by the PPI for Age UK shows that when people leave work before their planned retirement age, they have to find money to replace their earnings income. Pulling money out of pension savings early could have serious consequences for retirement income, through pot reduction.

“Additionally, those leaving work generally cease making pension contributions and miss out on the value of those they and their employer might have made had they stayed in work and any investment returns they could have accrued.”

Find out when YOU can comfortably retire

Making informed decisions on when you can leave work, change roles or go part time couldn’t be easier using the RetireEasy LifePlan.

You can feed in as many different scenarios as you wish – including varying the impact that different rates of inflation will have on your plans. If your subscription has lapsed, or you’re new to RetireEasy, go to https://www.retireeasy.co.uk/howitworks/helpful-charts to get the information you need in easy to read graphs and charts