Is Phased Retirement Right for You?
For retirees, leaving the workforce means leaving a steady paycheck and beginning to tap into retirement savings and benefits. For employers, the demographic shift means finding talented replacements for individuals who have clocked decades of experience on the job.
But there’s a win-win solution for both groups: a “phased” retirement, which allows older workers to continue building up their nest egg while, in some cases, mentoring their replacements.
What Is a Phased Retirement?
As its name implies, “a phased retirement is the notion that someone, as they approach retirement age, gradually steps out of the workforce,” says Kerry Hannon. Hannon is a best-selling author and a Washington, D.C.-based career, retirement, and personal finance expert. “You may drift back to working a couple of days a week or you may have a longer vacation span. It rolls out over a period of a couple of years, so it’s a slow [transition to leaving the workforce].”
Instead of establishing a firm retirement date, employees are more gradually leaving their jobs. This type of phased retirement is becoming standard for government jobs. For example, the U.S. Office of Personnel Management has a Phased Retirement program. Many private employers have taken note as well.
The federal initiative states that phased retirees will work 20 hours per week (or half the number of hours they worked when they were employed on a full-time basis), will continue contributing to their retirement plans and paying taxes, and will spend 20% of their time mentoring.
Although Hannon notes that while not many employers have rolled out such programs, one notable organization has adopted the strategy, allowing those in transition to continue accessing their employer’s health coverage, among other benefits.
At San Diego-based Scripps Health, phased retirees who meet certain requirements can continue their health, dental, life, and disability coverage at the same cost as full-time employees, allowing them to continue receiving their benefits.
How Can a Phased Retirement Benefit Me?
Like those at Scripps, easing out of the workforce through a phased retirement can help you continue to access health care benefits, as well as build up savings and delay tapping into your retirement funds or Social Security benefits.
“If you’re staying employed, you’re not losing your health care benefits or your retirement benefits–you can continue to pay into these things, though maybe not at the same level,” Hannon says. “There are a lot of really good benefits for people–psychologically and financially–to slowly step away and move into bridge jobs, and to keep earning as long as they possibly can.”
A slow transition to retirement in the form of a phased retirement can benefit you in many ways:
- You can keep saving for retirement
- You don’t have to worry about finding a different retirement job
- You can delay tapping your existing savings
- You may be able to retain valuable health insurance
- You get more freedom to do things you might want to do
- You can continue to maintain a schedule and social interaction at work, which is proven to keep you mentally healthy
Drawbacks of Transitioning to Retirement
If you already have plans for after retirement, such as volunteer work, a retirement job in a different field, self-employment, or a move to a different community, a phased retirement might not be best suited for your situation. Otherwise, Hannon says there aren’t many drawbacks for retirees to participating in such a program.
For employers, however, some challenges exist, as offering phased retirements can mean paying two salaries simultaneously if the older worker is mentoring a new hire to step into his or her role.
Though not particularly prevalent now, Hannon says phased retirements will become more popular in the coming year as the federal program continues to roll out.
“It’s definitely something we’re going to see more of,” she says.
Tips for Talking to Your Employer About Phased Retirement
If transitioning to retirement through a phased retirement appeals to you, but your employer does not have a formal program in place, you might talk to them about the benefits of keeping you around part-time.
Your employer will probably find it very appealing to have you there to train new employees and use your years of expertise to shape the future of the organization.
Before talking to your employer, think about a proposal for your hours, vacations, benefits, and salary. It is important to know what you need and want out of the relationship.
Do You Need a Phased Retirement or a Retirement Job?
While many people consider a retirement job or a phased retirement for the social and mental benefits of staying in the workforce, many others work in retirement out of a financial need.
A retirement calculator is an excellent way to figure out your retirement income needs and identify when you can retire.