Since the recession of 2008, more and more seniors have found themselves working further into their retirement years than they’d originally planned. Some do so out of necessity, others because they find they’re just not ready to enter the retirement lifestyle.
Enter phased retirement. This alternative to the traditional here-today, gone-tomorrow method of leaving one’s job has become fairly popular among Baby Boomers in recent years.
Essentially, phased retirement means shifting to part-time work for a few months or even years, before leaving the workforce completely. This could mean working shorter days, shorter weeks, or working unconventional hours - the system looks different depending on you and your employer.
Surveys asking whether companies offer phased retirement have offered differing numbers, with some finding that as few as 4 percent of American companies offer a formal phased retirement program, and others finding as many as 21 percent.
However, many companies are also working one-on-one with valued older employees to create informal, individual phased retirement programs. So even if your company is not one of the few to offer this retirement alternative as an official benefit, it still might be worth talking to your boss or colleagues about whether this kind of job exit could be a possibility.
Pros of phased retirement
The positives of phased retirement are many and varied.
For one thing, active seniors who are ready to start winding down their careers, but not quite ready to leap into retirement with both feet, can use this method to get a taste of what’s next. By gradually spending more hours off the job, soon-to-be retirees can begin planning how they want to spend their time once they’re completely retired.
And since retirement is often a jarring, disorienting experience, phased retirement has another benefit too. This exit strategy can allow seniors to slowly confront any emotional issues that begin to arise, rather than facing them all at once. This can be especially helpful for married seniors, as the spouses of the newly retired have their own adjustments to make, too.
One also can’t overlook the financial benefits of phased retirement. For some workers, moving to part-time work might allow them to stay in the workforce longer than they’d otherwise be able to. This additional period of regular income, not to mention the access to benefits, can be extremely helpful in bolstering a retirement account, or saving up for potential future healthcare needs.
Cons of phased retirement
Of course, phased retirement has its drawbacks as well.
The most important thing to consider when thinking about taking phased retirement is how drawing a lower salary for the final year or two of a career will affect your pension. If your pension is determined by your compensation, in addition to years of service, taking phased retirement could adversely affect how much you receive over the long term.
Ideally, you should also make sure that you are able to subsist on a reduced income without dipping into your retirement account. What you want to do is give your retirement savings as much time to grow as possible. You’ll have to look at benefits, too - will switching to part-time allow you to keep your healthcare benefits, or will you have to take care of your own?
If your employer has a formal phased retirement program, these questions should be easy to answer. If not, you’ll want to investigate these things thoroughly before committing to anything. And when and if you do decide to take phased retirement, it’s a good idea to get your new job terms in writing.
As with any retirement decisions, it is best to talk about the options with your financial advisor. He or she can help ensure that you reap the benefits of phased retirement, while avoiding as many of the drawbacks as possible.