As you begin the process of weighing up your retirement options, you may come to the realisation that you aren’t quite ready to completely exit the workforce. If that is the case, then consulting/contracting may provide you with a way to gradually transition into retirement on a phased basis. Read our guide to learn more about why this option may be ideal for you.
Why Are Mature Professionals Turning to Consulting?
In a 2013 study, Merrill Lynch found that seven out of ten surveyed pre-retirees say they would ideally like to include some work in their retirement years. So why might this be?
As you get closer to retirement, you may find that you want or need supplemental income. By continuing to work as a contractor, you can earn additional income. What’s more, you will delay spending your retirement resources, thereby ensuring that your nest egg lasts longer.
Forced Out of Employment by a Contract
Some senior professionals may find that they are forced out of a job due to a clause on their employment contract that stipulates that they must retire by a given age. These skilled and seasoned professionals do not wish to leave the workforce. Consulting allows such professions to continue sharing their hard-earned skills and knowledge in a professional capacity.
Stimulation & Satisfaction
Many people find that staying in the working world is beneficial for their mental, physical and emotional wellbeing. They derive great satisfaction from work and enjoy the opportunities for social contact. For many, work gives them purpose and helps them to stay vital.
What Are the Benefits of Contracting After Retirement?
Greater Control Over Your Career
One of the great benefits of contracting is that you gain greater control over your working life. As a contractor, you get to enjoy the freedom, flexibility and autonomy that comes with being your own boss. This means that you can define your own working hours and focus your attention on the projects that you most are passionate about.
Maximise Your Earning Potential
According to data collected by ContractingPlus, contractors aged 60 and over enjoy the highest average daily rate (€591) out of all age groups. Becoming an independent contractor can be a lucrative way for highly experienced professionals to ‘sell’ the knowledge they’ve built over the years to organisations who are more than happy to pay for it.
One of the few advantages of getting older is that you can offset more of your income against tax by contributing to a personal pension plan. Revenue applies a sliding scale based on an individual’s age and income. The maximum income allowed in 2021 is €115,000.
To illustrate, a 29-year old earning €115,000 per annum is allowed to offset 15% or €17,250 and claim 40% tax relief. This means that an additional €6,900 tax relief will be generated. However, a 60-year old may contribute up to 40% or up to €46,000. In this example, a contribution of €46,000 will generate additional tax relief of €18,400. If an individual is included in an occupational pension scheme or contributes to an Executive Pension Plan then the tax advantages are even greater as a principle known as Maximum Funding comes into play.
Employer contributions to occupational pension schemes, as opposed to personal pensions, are subject to different limits that relate to your earnings, service and the level of fund you have built up to date. These are often higher than the individual limits.
This is particularly useful if you are a senior employee, as you can use employer contributions as a means of increasing your pension contributions beyond the normal individual limits.
EXAMPLE: Suppose Mary owns her own company — or is a sole trader who could incorporate her business. Although Mary is earning €300,000 per annum, the limit on Net Relevant Earnings restricts her pension contributions to €46,000 per annum. However, that limit can be exceeded if the company’s earnings are used to make employer contributions to Mary’s pension. This works out nicely for Mary, as she is paying very high rates of tax on her income and the money would serve her better in a pension fund.
The Value of Older Contractors
“We find our clients are looking more and more for seasoned technical consultants to add value to niche projects. This type of opportunity can be very suitable to those who may not be looking for a full-time role and can work on an ad-hoc basis.”
~ Saoirse O’Malley, Manager, Business & Technology Contracts Division
A survey from AARP found that 83% of global business leaders recognise that multigenerational workforces are key to the growth and long-term success of their companies. The key to this trend will be the recruitment and retention of older workers.
Mature contractors offer organisations a wealth of value. Over the years, they have built up a large bank of skills, knowledge and contacts that will leave the industry when they retire. What’s more, older contractors who have a lot of experience behind them tend to bring a resilient attitude and greater perspective.
Talk to Us
If you are interested in learning more about embarking on a career in consulting in the lead-up to or post-retirement, give Berkley a call! Our expert recruitment consultants can chat with you about current market opportunities and offer advice on how to kickstart your contracting career today.