Shifting from a full workload to an open schedule upon retirement is a drastic change, and many baby boomers don't want such an abrupt transition. Some employers also want older employees to pass their valuable skills on to younger workers before they leave. A phased retirement, which consists of full-time employees moving to part-time schedules, could be a viable solution for employers and older workers alike.
A phased retirement enables companies to retain talent and allows those approaching retirement to make a smooth transition. "Phasing into retirement can be a wonderful way to move into the next chapter of your life gracefully while still enjoying the rewards and benefits of working," says Julianne Andrews, a financial advisor at Atlanta Financial Associates.
Retirement time frame
Even if there isn't an established phased retirement plan at your current job, you might want to talk to your employer about this strategy. Before you begin the conversation, develop a plan for what the setup would involve and how it could unfold for you.
The following guidelines can be used to help determine if you want to phase into retirement:
- Review your finances.
- Look into company policies.
- Talk to your employer.
- Check benefits.
- Evaluate your Social Security situation.
- Look at your retirement strategy.
Review your finances
Working fewer hours will translate to a reduced income, and it's important to understand how that could impact your lifestyle. "Evaluating your expenses and cash flow is one of the most important considerations," says Kate Ryan, a New York City-based wealth management advisor with TIAA. If a lower paycheck won't cover some of your living costs, you'll need to determine if some expenses can be reduced or if you can cover them with other funds.
It's wise to think about major upcoming expenses, such as a wedding or tuition payments, and consider if a reduced income will cover those costs. Also look at your retirement funds. You may decide that working on a part-time basis, rather than fully retiring, will give your retirement savings more time to compound.
Look into company policies
Formal phased retirement programs are rare. Only 9 percent of employers offer an official phased retirement program, according to a 2018 Willis Towers Watson survey of 143 large U.S. employers with 2.9 million employees. However, up to 23 percent of employers may have a phased retirement program by 2020, according to the survey.
The growing interest in phased retirement programs could work to your advantage. "There are no substantive rules or limitations regarding formal phased retirement plans, so this is actually a great time for employers to discuss the pros and cons," says Barry Kozak, a consultant at October Three in Chicago. "An employer that adopts a formal phased retirement program can boast about being an organization that embraces an aging population and workforce, and if laws or regulations governing phased retirement programs are ever implemented, then early adopters might actually establish the best practices that their competitors will need to follow."
Talk to your employer
Get a sense of how a phased retirement might play out at the organization you work for. "Assess and consider your company's policies and culture on flexible work arrangements," says Joe Casey, a retirement coach with Retirement Wisdom and former HR executive. "While the vast majority of companies do not offer formal phased retirement programs, primarily due to benefit plan constraints, many managers are open to coming up with a 'one-off' arrangement for a valuable employee."
You might suggest working a set number of hours each week and carrying out a determined list of responsibilities. "Some people still feel like they are working full time, even if they are officially supposed to be working at a 50 to 75 percent capacity," Ryan says. "It is important to set measurable expectations with your employer." Duties such as mentoring, training or consulting could work well for a phased retirement. Other options to reduce the overall workload include taking more vacation days, telecommuting on a regular basis or moving into a different position to lower stress.
Along with paycheck reductions, it's important to ask if your current benefit coverage will remain the same. "By undertaking a phased retirement, an employee may be able to participate in company benefits, including health coverage and benefits, pre-tax deferral options, retirement plan matching, group life insurance coverage and other employer-related benefits," Ryan says.
However, if you are working below a certain number of hours, some of these benefits may not be available. If you will no longer receive health insurance, for instance, you'll need to find different coverage. For those age 65 and older, Medicare might be an option. If you are under age 65, you may need to purchase coverage on your own.
Evaluate your Social Security situation
Look into how a phased retirement will impact your Social Security benefit. If you work and receive Social Security benefits at the same time before your full retirement age, part or all of your benefit could be temporarily withheld if you earn too much. "If you are already at full retirement age, you may want to consider beginning to take Social Security to supplement your income," Andrews says.
After you turn your full retirement age, you can work and receive Social Security payments without any Social Security benefit withholding. If you are able to delay taking benefits due to your phased retirement income, the monthly amount you eventually receive will increase.
Look at your retirement strategy
If you have a detailed plan of what you want to do during retirement, you may not need time to configure a new schedule. For those who aren't certain what activities to pursue in the next stage, a transition period with a part-time schedule can provide time to consider options. "During phased retirement, they have time to investigate where to live, what to do during the average day, who they will socialize with, how they will deal with transportation logistics and how other family members will get along with each other now that they will spend more time together than they might have spent together prior to retirement," Kozak says.
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