These labels are important as they define our attitudes and the services we provide. As society changes, some established labels are beginning to lose their clarity. For instance, when does someone ‘retire’ and when can we begin to label them as a ‘pensioner’?
Taking a step back let’s look at the stages a person may go through on their journey from working into retirement. Some may stop work completely at State pension age, claim their State pension and other pension provision in which case it seems safe to use the conventional terms of ‘retirement’ and ‘pensioner’.
But is it? What if they are in a two-income household and the major earner has yet to reach State pension age and continues working full-time. Are we dealing with a retired household made up of pensioners? Or a household that has similar characteristics in income terms to one where one partner works full-time and the other part-time? Depending upon the energy and personal attitudes of the individuals we may be insulting them by the use of the terms ‘retired’ and ‘pensioner’.
The journey from work to retirement can go through many stages from a financial viewpoint - some clear some not so clear. It may not be an overnight transition. To me the journey can be placed two headings: ‘Changes in earnings’ and ‘drawing pension benefits’.
In a previous article, I described how during a working life wealth is created by putting aside the excess of income over spending for the future. In retirement the wealth that has been created is drawn down to make up the shortfall in spending needs that is not met by income sources, i.e. State and other pensions in payment.
There are several ways changes in earnings can occur. For some it can be as simple as not doing so much overtime. For others it can mean moving to a less onerous role; working part-time or becoming self-employed either as a consultant or by turning a hobby into a business.
On that basis, do they retire from a financial planning point of view when their income does not exceed their spending and they begin to draw down on their wealth? Some will be so successful with their consultancies or ‘hobby’ businesses that their income increases as a result and they have greater surpluses to put aside for the future. Will they be experiencing a ‘turbo-charged’ extension to their middle age?
Then there is the drawing of benefits. Some defined benefit pension schemes do not offer members the right to defer the commencement of their pension.
Reach age 60 or 65 and the pension must be paid. The State pension can be deferred on what currently could be argued to be reasonable terms.
The situation can arise therefore when a defined benefit pension scheme from a previous occupation increases the income payable to someone who otherwise would be regarded as in full-time employment. Have they retired? Are they a pensioner? From a financial point of view they could have greater surpluses of income over spending, to be put aside for their future.
The State pension can make a significant difference to income particularly if there are other income sources. The decision about whether to defer or not can be complicated, this will include taking account of issues such as tax, health and other income sources. The position of partners could further complicate these issues.
Claiming pension benefits may for some be the trigger than enables them to take action to reduce their earnings and have more leisure time.
‘Retired’ to me defines someone who has given up work forever and is living off pension income which makes them a ‘pensioner’. However, there may be a decade or more before that occurs during which many changes to the state of their finances may occur. Over this period they could be moving from having income surpluses to put aside to having to draw on their retirement savings and back to having surpluses again.
So what labels should be used to describe those in this period of transition? To me they are in a period of ‘prolonged middle age’ and their status is what it is, employed, self-employed or even unemployed if between employment.