The Gap Years: Planning for the Phase Between Work and Retirement

No longer does this just mean time out before you start university!

Retirement doesn’t usually happen overnight. For many people, there’s an important bit in the middle - the gap years. This is the bit between full time work and full time fun!

This is the stage when you might want to work less, travel more, or simply test what life after work feels like before moving into it fully. It is also a period where careful planning can make the difference between confidence and uncertainty.

What Are the Gap Years?

Think of the gap years as your financial and lifestyle bridge between employment and full retirement. For some, it’s five years of part-time work; for others, a few years of drawing from savings before pensions start.

It’s when:

• You may have reduced income (less work, no full salary)

• You haven’t yet started drawing your main pension

• Your expenses might stay roughly the same as when you were working

  
  

Without a plan, these years can feel like a financial limbo. However with a plan they can be a period of freedom, flexibility and spending with financial confidence.

The Most Common Question: “What Do I Live On?”

For most clients, the key challenge is coordinating when and how different income sources kick in. Here's a common pattern I see:

John and Elaine’s story

John, 59, plans to leave his job next year. Elaine, 57, wants to work three days a week for a couple of years. Their State Pensions won’t start until 67, and their final salary pensions form previous employment don’t start until 65.

The question wasn’t if they could retire, but instead it is how do they fund the gap.

By mapping out their income, taking account of savings, investments, part-time earnings, and pensions I created a clear plan showing how much they could draw each year whilst also taking account of their longer term goals.

That’s the aim of this planning: understanding where your money will come from, when it comes and for how long.

Coordinating Income Sources

During this stage, timing matters more than ever:

• Cash savings can provide short-term flexibility for the first year or two.

• ISAs offer tax-free withdrawals and can help bridge the gap before pensions begin.

• Pensions can often start from age 55 (rising to 57 in 2028) but deciding when to access them can affect tax and long-term growth.

• Part-time or consultancy work can supplement income and keep a sense of purpose.

Coordinating these sources can help provide you with enough income and manage your tax position, helping you avoid unnecessary withdrawals or paying too much tax.

The Emotional Side of the Gap Years

Whilst the numbers matter, this stage is as much about purpose and making sure you are comfortable with the shift away from full time work. After decades of routine, it can be strange to wake up without the same structure or sense of purpose.

For some, working less brings relief. For others, it raises questions: “Who am I without my job?” “What will my days look like?”

The beauty of the gap years is that they let you test and shape your next chapter, without the all-or-nothing leap.

Stress Testing Your Plan

As with all financial planning, it’s wise to run the “what ifs”:

• What if one of you stops working sooner?

• What if you need to access money earlier than planned?

• What if markets fall just after you start drawing on investments?

  
  

Lifetime cashflow planning can show how these scenarios might play out so you can make decisions with eyes open, not crossed fingers.

The Reward: Freedom and Confidence

Handled well, your gap years can be the most liberating part of your working life. It’s the time where you can:

• Take extended breaks that you couldn’t have done before.

• Spend more time with family without giving up purpose or income.

• Move from “working because I have to” to “working because I want to”

  
  

It’s not retirement, it’s about you having the financial freedom to live the life you want.

This blog is for information purposes and does not constitute financial advice, which should be based on your individual circumstances.

The Financial Conduct Authority does not regulate Cashflow Planning.

The value of pensions and any income from them can fall as well as rise. You may not get back the full amount invested.