Financial planning is really about… suggesting a client retire gradually

One possible solution for clients who want to retire but cannot afford to is to cut back their working hours but remain partly in the workforce. We call this a ‘gradual retirement.’ A gradual retirement has obvious financial benefits – the client keeps earning at least some employment income for a longer period of time, and if they are employees they also continue to receive at least some super contributions for a longer period.

The benefits are not solely financial. There is increasing evidence that people who remain in paid employment are healthier than their retired age-peers. And there is anecdotal evidence that the period immediately post-retirement can be one of great stress for married or partnered couples, who all of a sudden find themselves spending a lot more time together than has previously been the case.

These paragraphs may need to be tweaked to suit your client’s circumstances, but they can work especially well in conjunction with the suggestion to delay retirement.

Adviser tip – here is how you might suggest it

Can you see these paragraphs in your next SOA:

Many people approach retirement working full time and then come to a complete stop. If possible, it can be an even better idea to start the process of retirement gradually, moving from working full time to not working at all over a period of five or even ten years.

The idea is to do things like: (i) cut back on the number of days per week, perhaps giving yourself an extra day, or two or three; or (ii) take periods of leave without pay each year. This extra time off can be used to engage in retirement activities such as golf, or travel, or spending time with grandchildren, while not leaving the workforce altogether. By staying in the workforce, you can continue to earn enough to finance all or much of your current lifestyle and you will also be able to continue to save more for your eventual total retirement. And by delaying the time at which you enter full-time retirement, you shorten the period that your retirement savings need to last. This gives you a higher standard of living in retirement and will also probably increase the amount that you are able to leave to your children when they eventually receive their inheritance.

The Dover Group