Phasing into retirement: The emotional and financial benefits

04 November 2025

Last month, you read about how retirement is changing, with almost half of workers aged over 50 exploring phasing into retirement. There are plenty of reasons why more people are considering a gradual retirement, including the emotional and financial benefits this option could offer.

A gradual retirement could help you retain a sense of purpose and social life

When thinking about retirement challenges, most people focus on having enough to live on for the rest of their lives. The emotional challenges may be overlooked.

Retirement is a significant milestone and can change your lifestyle completely. If you retire on a set date, you may go from a fixed routine to the freedom to spend your time however you wish within a single day. While that might sound like bliss and something you’ve been looking forward to, it’s not uncommon to struggle with it initially.

An October 2017 survey by the Centre for Ageing Better and the Calouste Gulbenkian Foundation found that 20% of UK adults who had retired within five years said they found the change difficult.

Those planning to retire within five years of the survey also reported concerns, including:

• Feeling bored (33%)
• Missing social connections from work (32%)
• Losing their purpose (24%)
• Feeling lonely (17%)

Age UK research from December 2024 further demonstrates the challenges some retirees face. It found that 7% of people aged over 65 – the equivalent of around 940,000 people – often feel lonely.

Phasing into retirement could help you retain your sense of purpose and social circle while benefiting from more free time to pursue your passions or simply enjoy a slower pace of life.

Phasing into retirement could support your long-term finances

There are two key reasons why taking a gradual approach to retirement could be beneficial from a financial perspective.

First, if you’re still earning an income, you might not need to draw money from your pension or deplete other assets. As a result, you’ll have more to fund your lifestyle once you give up work completely.

In some cases, your salary will be lower when you’re phasing into retirement, so you might take an income from your pension to supplement it. While you’d be reducing the value of your pension, it’s likely to be at a slower rate than if you weren’t working at all.

Second, you may opt to continue contributing to your pension while you’re transitioning. Again, this could mean your pension is larger when you need to cover more of your expenses in the future.

It’s important to note that if you take a flexible income from your pension, the amount you can contribute tax-efficiently could fall to just £4,000 in the 2025/26 tax year under the Money Purchase Annual Allowance. If you plan to contribute to your pension as you phase into retirement, we can help you assess how to do so tax-efficiently.

Managing your finances if you’re gradually retiring can be complex. You might be juggling multiple incomes, and you’ll also need to consider how your decisions could affect your long-term security.

Working with your financial planner to create a cashflow model can provide clarity. It’s a useful tool that could help you assess the effect of your decisions, so you can feel confident about your finances.

For example, you might use a cashflow model to see if you have enough in your pension to halt contributions earlier than planned so you can phase into retirement. Or you could see how the value of your pension will change if you withdraw £20,000 annually for five years to supplement your salary before taking an annual income of £40,000 when you stop working.

While the results of a cashflow model cannot be guaranteed, it does provide useful insight to help you make informed decisions about retirement or other financial matters.

Contact us to discuss your retirement plan

We can help you create a retirement plan that reflects your lifestyle goals, including phasing into retirement. Please get in touch to discuss the next chapter of your life.

Next month, read about some important financial considerations if you’re planning to phase into retirement, such as when to access your State Pension and how to manage tax liability.

Please note: This blog is for general information only and does not constitute financial advice, which should be based on your individual circumstances. The information is aimed at retail clients only.

Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.

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 cashflow modelling.

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