Baby Boomers retirement behaviours: Unretirement, flexi-retirement and delaying full retirement

20 Nov 2024

First seen on FTAdviser

Our most recent generational study at Dunstan Thomas focused on the retirement behaviours and prospects of the baby boomer generation, born between 1946 and 1963.

In this study, we were particularly keen to explore boomers’ retirement plans as so many of this age group are reaching retirement age right now. Are they adopting a different approach to retirement and, if so, why are their retirement habits changing? Let’s explore.

In the UK, when compared to previous generations, the boomer generation is a colossus. It is nearly twice the size of the previous so-called silent generation of pensioners. Boomers have been reaching state pension age in the UK in extraordinarily large numbers each and every year since 2012 and will continue to do so right through until 2030.

Indeed, we passed the middle of this 17-year retirement population bubble in 2019 shortly before the pandemic swept across the globe. So, what is the size of the boomer-driven retirement bubble? In 2019, 682,331 UK boomers reached the current state pension age of 66, and last year almost exactly 700,000 reached that key milestone. Indeed, we will not see the annual retirement numbers drop well below these sorts of numbers until 2030 and by that year more than one in five of the UK population will be over 65.

Baby Boomers hold a high percentage of all current pension assets

The key reason for going back to this audience is that, for at least the next 10 years, boomers hold a higher percentage of all current pension assets than any other group; and because they are in the midst of retirement they represent a terrific opportunity for IFAs, platforms and providers, particularly if we can help them make a smooth transition from accumulation to decumulation.

The latest population projections from the Office for National Statistics tell us that for someone reaching age 66 this year, their most likely age at death will be 87. Most people grasp that this is a higher age than it was for previous generations. However, very few people know about the wide spread of their likely window of death. They are now more likely to die before reaching age 82 or after reaching age 94, than in the intervening 12 years that surround that life expectancy of 87.

ONS data confirms that age at death for pensioners is now far more spread out than it was 100 years ago. This makes planning income drawdown – today’s preferred method of turning pots into retirement incomes – really challenging.

In terms of the UK people’s personal wealth and pensions savings levels, much has also changed since the previous generation began their retirement journeys. Let’s look at some of those key changes first.

Decline in defined benefit pensions

The decline of participation in the relatively generous defined benefit pensions is affecting boomers’ retirement income prospects very significantly. According to our 2022 findings, 47% of boomers have access to the more generous DB final salary pensions.

Whereas those relying on defined contribution pensions anticipate relying on them for just 37% of their total retirement income needs, and 14%of our sample of boomers will be reliant on state pension payments alone for their retirement income.

Lack of pension savings from self-employed

This is affecting boomers more than previous generations because more of them are becoming self-employed in their latter years of work. Today, more than one in eight (13%) of the working age population in the UK are self-employed; that is 4.27mn of 33mn UK workers that are running their own businesses or working on a freelance basis.

That in itself would not be a concern, except that the pension savings habits of the self-employed are not nearly as sound as their employed colleagues, a recent Institute for Fiscal Studies report found.

Among self-employed workers who make annual profits of more than £10,000, just one in five (20%) is saving anything into a pension, down from three in five in 1998. The self-employed have not benefited from auto-enrolment and tend not to increase contributions as their earnings grow either.

Pension freedoms

Pension freedoms launched at the back end of the great recession to enable people approaching retirement to have more control over how they use their retirement savings. However, it left some, mostly lower earning groups, more exposed than ever to poverty in old age.

Many just have not been putting enough into their pensions in the run-up to retirement and will consume what they have saved all too soon.

A recent IFS paper published this month confirmed that less than half of private sector workers contribute more than 8% of their total earnings into their workplace pension scheme.

The economics think tank recommends that 15% of earnings is needed to ensure a decent retirement income. In 2024, we are already seeing the effects of this under saving with Age UK’s research revealing that more than 2.1mn pensioners are officially now living in poverty.

Increased renting in retirement

Earnings have not kept pace with the rise in the value of UK property to such a degree that we are seeing a decline in home ownership even among those now approaching retirement age.

Right now, 10% of UK people born in the 1960s are private renters. However, by 2035 one in five (20% of those approaching state pension age will still be renting their own home.

It costs far more to rent a home than to own one with the mortgage already paid off. On top of that, renters have no opportunity to supplement an inadequate pension with an income generated from home equity release.

Intergenerational subsidisation

Our own research found that many boomers were still supporting both their children and grandchildren deep into old age. This means that they now anticipate needing more retirement savings than they may have originally planned for.

23% of retired boomers are still financially supporting their children and the average length of time they expect to keep this up in retirement is nearly 10 years. Our study also found that 16% of boomers were supporting their grandchildren.

We interviewed pensioners that were paying for grandchildren’s laptops and assisting them with university accommodation fees, for example. We also found lots of evidence of parents paying for adult children’s mobile phone bills, train fares and much else besides.

Gender equalisation of state pension age appears to be stimulating later retirement

Gender equalisation of state pension age appears to be stimulating later retirement as couples wait until they are both entitled to their state pensions and ready to fully retire. As a result, it is becoming increasingly common for a spouse to work on for longer than they originally planned to, while waiting for their partner to reach state pension age.

Women have been noticeably affected by gender equalisation as many of those that originally planned to retire at 60 now find themselves obliged to work on to age 66, or even beyond if their partner delays his or her retirement.

Late retirement

Our own boomer study also found that 38% of boomers planned to retire later than state pension age of 66 years. The average length of time that this large group of ‘retirement resisters’ plan to work on for is 4.3 years. So, this very large group will, on average, be over 70 when they retire.

So, if 38% of Boomers are not going to retire at state pension age, what are the growing ranks of working pensioners up to? 23% are still working full-time and very nearly half (47%) are working part-time.

Semi-retirement not catered for by personal pensions rules

However, as a growing number of boomers are seeking to transition from full time to part-time working, and begin drawing on their pension savings to fill any income gaps, do pension rules need to change to accommodate this flexi-retirement model?

The money purchase annual allowance designed to prevent people ‘round tripping’ HMRC over tax-free cash sits very badly with the partially retired. Someone who works three days a week and is retired for the other two would like to be contributing to their workplace pension for three days and drawing down on older pension pots for the other two days a week.

Rising unretirement

Even back in early 2022, our research detected that many boomers who were forced into impromptu retirement in the height of the pandemic are now ‘un-retiring’. As many as half a million people in their 50s, many of them our youngest tranche of boomers, were laid off in early 2020. And because the economy was shuttered in many sectors, there was no point in looking for work.

However, IFS research conducted in 2023 detected this marked uptick of people who had been out of work for less than three years – that is, they had left the workforce after the pandemic began – have now gone back to work. This group accounted for the majority (57%) of the 197,000 50 to 64-year-olds who moved out of work inactivity in the last quarter of 2022. Many younger boomers are among the un-retiring it seems.

Indeed, recent analysis of ONS numbers published by the Financial Times confirmed that the trend for the over 65s to carry on working is on a long-term upward curve and may only have experienced a short-lived downward blip during the early part of the pandemic.

In 2023 there were 527,600 over 65-year-olds in the UK working on full-time, representing 4.3% of the UK population of this age group. That is considerably up from 2.7% of the same age group that were working full-time when the Cameron-Clegg-led coalition government took power back in 2010.

It is a triumph for diversity that older workers are increasingly accepted within the workplace.

Exploring flexi-retirement options

For those that prefer to work on but not in a full-time capacity, there are good options for boomers looking to slow down a little but still stay connected with a workplace. Some boomers might choose to work in a seasonal way: perhaps they have inherited a farm abroad that demands their attention in the olive or grape growing and harvesting season. Perhaps the work they do has fluctuating demand. Perhaps they do not need the money but enjoy the stimulation that different types of work gives them.

Boomers, it seems, are making a growing range of contributions to society and the world of work. According to the government’s own Community Life Survey, 34% of 65 to 74-year-olds were “informally volunteering” at least once a month (34%). Over the age of 75, 30% are still volunteering at least once a month.

Others use their grey matter and extensive experience in the world of work to provide high level advice and consultancy to businesses struggling to grow, looking for a fresh rounds of funding, or simply needing help to navigate the pitfalls of trying to expand a business, building teams, winning the right types of new clients, creating business processes that deliver efficiencies, designing products that generate strong profits, and much more.

How many ex-company bosses do you know that are now fractional chief experience officers or non-executive directors helping younger boards of directors to navigate some of the harder parts of building a business?

Working on longer is good for the nation as well as our health

Greater preponderance of knowledge worker-based jobs means that boomers’ experience and expertise only continues piling up the longer they work. Some boomers are learning to trade on this knowledge and expertise for much longer.

Skilled workers can work on into their 80s and perhaps they need to be encouraged to do so to keep them healthy, active and paying taxes to aid the Treasury’s ailing coffers. The UK government estimates that adding one year to everyone’s working life would add 2% to the nation’s GDP.

Mental health has become a big issue among older people. One in six suicides are now among the elderly population and these are mostly linked to mental health issues. In addition to the high levels of stress that poor mental health among the elderly causes other family members, it places additional burden on the costs of the NHS, with more doctor’s appointments, more hospital admissions and more prescriptions of anti-depressant drugs.

A study across four countries published by the London School of Hygiene and Tropical Medicine has shown that working on past retirement age can significantly reduce later-life mental health issues.

Admittedly, these improvements were mostly seen among those who stayed in work as a matter of choice rather than through financial necessity.

It seems that the best course of action is to make financial plans for a comfortable retirement from an early age, and then to defer complete withdrawal from the labour market in favour of carrying on selectively in jobs that really stimulate you.

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