Working Longer or Retiring Earlier? The Trade-Offs Worth Weighing-Up
Updated: Oct 1
For many people in their late fifties and early sixties, the conversation at the kitchen table sounds familiar. "We could stop now....or we could do another three years and be more comfortable."
Both are reasonable. Neither is automatically right.
This post won't tell you that you should work longer, or that you should get out while you can. Instead, it sets out the trade-offs, so that whichever way you go, it's a choice you've made with your eyes open.
Why this is a live question right now
In April 2026 the State Pension age began rising again, from 66 towards 67. The change is being phased in through to early 2028 and affects anyone born on or after 6 April 1960.
At the same time, the earliest age you can normally access a private pension is due to rise from 55 to 57 in April 2028. Put those together and the gap between "I can touch my pension" and "the State Pension starts" can easily be ten years or more.
The Institute for Fiscal Studies has looked closely at what happened when State Pension age rose before. Employment among the affected age groups went up by around 10 percentage points, and that rise was, in the IFS's words, "fully driven by people staying in their existing jobs for longer, rather than moving to a new job or re-entering paid employment." But the IFS also points out that only a minority of people respond to a higher State Pension age by working longer. When the age rose from 65 to 66, income poverty among 65-year-olds rose from 10% to 24%.
Two lessons stand out. Staying on tends to work best for people who are still in a job they can keep doing. And if you plan to stop before State Pension age, the years in between need a plan of their own.
1. The real question isn't "retire or not"
It's easy to frame this as a yes or no. In practice, it's a question of which trade-offs you can live with. Four lenses help:
Cashflow: Will the money coming in cover what you want to spend, every year, for as long as you need it?
Tax: How much of what you draw will you keep, and are you using your allowances in the years when they're available?
Health: How much good-quality time do you want to protect, and what does your current work do to your energy and wellbeing?
Lifestyle: What would you actually do with the time? Travel, family, a project, a second career?
Most people find that one or two of these matter far more to them than the others. That's a useful starting point in itself.
2. Working longer: what you gain, and what it costs
What you gain:
More going in. Each extra year can mean more pension contributions, often with tax relief and, for employees, employer contributions on top. If you own your company, employer contributions can also be a tax-efficient way to extract profit.
More time for growth. Your existing savings have longer to grow before you start drawing on them.
Fewer years to fund. Starting withdrawals later means the pot has fewer years of retirement to cover, which can allow a higher sustainable income.
A shorter bridge. The closer you work to State Pension age, the smaller the gap your own savings need to fill.
What it costs:
Time you don't get back. The years between 60 and 70 are, for many people, the most active years of retirement.
Health isn't guaranteed. Nobody knows how many healthy years they have. Working longer is a good deal when you're well and enjoy what you do. It's a much worse one if work is wearing you down.
For business owners, a hidden risk. Staying on for "just a few more years" can make a business more dependent on you, not less, which can affect its value and your options when you do come to step back.
3. Retiring earlier: the lifestyle win, and the bridge
What you gain:
The obvious one: time, while you have the energy to enjoy it. For many people, that's worth more than a bigger pot later on.
What it costs:
Stopping early means you have to fund the years before State Pension age entirely from your own savings, investments and pensions. Pete Matthew of Meaningful Money calls this stretch the "Danger Zone", and names three risks worth taking seriously:
Running dry: spending more in the early years than the pot can sustain.
Sequencing risk: a market fall in the first years of drawing an income can do lasting damage, because you're selling investments when prices are low.
Tax inefficiency: drawing money in the wrong order, or in the wrong amounts, and paying more tax than you need to.
To put a rough number on it: if you stopped work at 60 and your State Pension age is 67, that's seven years. The full new State Pension for 2026/27 is £241.30 a week, or about £12,548 a year. Seven years of that is close to £88,000 in today's money that your own savings would need to cover, on top of everything else. And the pot itself has to last longer, potentially 30 years or more.
None of that means early retirement is a mistake. It means it needs a bridge that's been built deliberately.
4. The middle path
For many people, the best answer isn't at either end. Some options worth exploring:
Phased retirement or part-time work. Dropping to three days a week, or moving into consultancy or contract work, can keep some income coming in while giving you back a good chunk of your time. For IT professionals, this is often an easy step to take.
Topping up part-time income carefully. Drawing a modest amount from your pension alongside part-time earnings can use up allowances you might otherwise waste.
Thinking about the order you draw from. Cash, ISAs and pensions are taxed differently. The order you use them in can make a real difference over a decade or more.
Taking tax-free cash in stages. Rather than taking your whole tax-free lump sum at once, it can sometimes be spread out to support income over several years.
Deferring your State Pension. If you don't claim the new State Pension when you reach State Pension age, it increases by 1% for every nine weeks you put it off, which works out at just under 5.8% for each full year. The trade-off is income given up now for a higher income later, and it takes many years to come out ahead.
One thing to watch: if you're still working and paying into a pension, taking taxable income from a defined contribution pension (beyond just your tax-free cash) usually triggers the Money Purchase Annual Allowance. That cuts the amount you can pay into pensions with tax relief to £10,000 a year. It's an easy trap to fall into during a phased retirement.
These choices interact with each other, and the right mix depends entirely on your circumstances.
This is exactly where regulated advice earns its keep. A regulated financial adviser can help you model the options side by side before you commit to any of them.
5. Three numbers to sense-check before you decide
You don't need a spreadsheet to start. These three numbers will tell you a lot.
1. Your gap years
How many years are there between the date you'd like to stop and your State Pension age? You can check your State Pension age at gov.uk/state-pension-age and get a forecast of what you'll receive at gov.uk/check-state-pension. Multiply the gap by what you'll need each year, and you have a first idea of the bridge you'll need to build.
2. Your sustainable withdrawal rate
What percentage of your pot can you take each year without a serious risk of running out? There's no single right figure. It depends on how long you need the money to last, how it's invested, and how flexible your spending is. Treat any "rule of thumb" you read about as something to test, not a promise, and remember that the first few years matter most because of sequencing risk.
3. Your tax bands
The Personal Allowance is £12,570 and is frozen until April 2031. The basic rate of 20% applies up to £50,270 in England, Wales and Northern Ireland (Scotland has its own bands). A full new State Pension of around £12,548 uses up almost all of your Personal Allowance on its own, so pension income on top of it is largely taxable once the State Pension starts. That can make the bridge years a useful window: your allowance is otherwise unused, so drawing some pension income then may be more tax-efficient than waiting.
It's also worth knowing that from April 2027 most unused pension funds are due to be brought into the scope of Inheritance Tax. That could change how you think about which pots to spend first and which to leave untouched. A financial adviser can help you think this through.
Don't forget the paperwork
Stepping back from work is a natural moment to make sure your affairs are in order. If your will is out of date, or you haven't yet put Lasting Powers of Attorney in place, the estate planning tools at Niggly Stuff are a simple place to start.
The bottom line
Working longer and retiring earlier both have real costs and real rewards. The right answer is the one where you understand what you're giving up, and you're comfortable with it.
If you're weighing up stopping work sooner against staying on a few more years, a short cashflow and tax sense-check often makes the real trade-offs much clearer, without committing you to either path.
Sources
Institute for Fiscal Studies, The state pension age is going up again: why is it happening and what might the effects be? (April 2026)
Institute for Fiscal Studies, Recent and future patterns of work around state pension age (June 2022)
Meaningful Money, From Early Retirement to State Pension: A Safe Bridge Strategy (January 2026)
Important information: This article is for general information only and does not constitute financial advice. Tax rules and allowances can change, and their value depends on your individual circumstances. The value of investments and the income from them can fall as well as rise, and you may get back less than you invested. Fit to Retire Ltd does not provide regulated financial advice. For personal advice, speak to a regulated adviser.
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