The concept of phased retirement isn’t new. Workers have been saying for years that the idea of a “glide path” to full retirement, with gradually decreasing work hours, is their ideal solution, as compared the traditional concept of retirement as an either/or proposition. In the past, most workers reached the point where they were employed one day and retired the next, but not anymore. Today – in a trend accelerated by the COVID pandemic and the work-from-home rules – the idea of sliding more gradually into retirement seems to be gaining traction.
The latest article on this subject to attract our attention was this report just published by CNBC. In it, reporter Michelle Fox looked at recent data and concluded that the idea of phased retirement is not only popular with workers, but also with a growing number of companies. Is it right for you? Let’s take a look.
Retirement Doesn’t Have to be Drastic and Sudden
For some, a sudden and full-on retirement just isn’t possible or attractive, whether emotionally or financially. But phased retirement, a reduction of work-hours in a more gradual pattern, is becoming increasingly common and may even be the best option for many.
In her article, CNBC’s Fox cites the most recent survey from the Transamerica Retirement Survey of Workers, which states that a surprising “45 percent of U.S. workers envision reducing their work hours in a phased transition into retirement.” This shows a marked difference in the way modern workers see retirement, not as a “one day working, next day not” proposition but as a gentler, more emotionally and financially beneficial idea.
Because of its rising popularly, a phased retirement can be crafted either formally—through an agreement with your employer—or more informally. Let’s explore the options.
Employers are Getting on the Bandwagon – Slowly
Formal phased retirement is gaining traction among employers, according to a survey by the Society for Human Resource Management. The survey found that 15 percent of employers offer a phased retirement program that is more informal, while 6 percent offer a formal option. Among these, it is more common to find phased retirement offered to employees who are considered high-performers with in-demand skills.
Regardless, between the COVID-19 pandemic, which forced employers to offer more flexibility for workers, as well as longer life expectancies and dwindling employer pension plans, the length of a worker’s career has definitely expanded in recent years. This has led to more workers working longer into what would have been their retirement years, but with a bit more wiggle room and flexibility for other pastimes and priorities.
Planning for Phased Retirement May Start with a Call to HR
Interested in phased retirement? The first step could be as simple as making the right phone calls. Your company may already have a policy in place, especially if you work for a larger corporation (which is more likely to have a formal phased retirement program). In these formal programs, the company will often assign you a certain number of work hours so that you can continue with uninterrupted health insurance.
But even if your employer doesn’t have a formal program, it doesn’t hurt to inquire whether there’s a way you can work with them to scale back your hours. In this model, the onus is on you to find out how many hours you’ll need in order to keep your benefits: otherwise, you’ll end up purchasing your own, typically at a much higher cost. An informal phased retirement is certainly possible – it just might require a bit more awareness of the best plan that both you and your employer can agree on.
Diahann Lassus, certified financial planner at Peapack Private Wealth Management, advises to do your research in advance so that your employer isn’t blindsided by your questions and you aren’t blindsided by their answers. “The key is having those conversations well before you are ready to walk out the door,” she says.
If Your Employer Says No, You Still Have Options
It is possible, even after you’ve done your research and asked the right questions, that your employer won’t budge on offering phased retirement, either because they can’t or simply because they won’t. But that doesn’t mean you’re stuck. You still have options available, including finding a new job, starting your own business, or choosing work that is purposefully part-time.
Starting a business or freelancing could be an exciting way to retire from one career and pursue something you’ve always been interested in, and working part-time can help you delay collecting Social Security. As Fox explains, “While many people start collecting reduced benefits at age 62, 100 percent of the benefits kick in at age 67, for those born in 1960 and later. If you push receiving Social Security back to age 70, the benefit jumps to 124 percent.” In other words, waiting pays off.
Whether your employer can offer you reduced hours or you have to build your own plan, phased retirement is growing in popularity for workers on a national level. The key is to start strategizing as soon as you can, asking the right questions and doing your research, to make sure that you can craft the plan that works best for you and your retirement dreams.
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(originally reported at www.cnbc.com)