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Phasing into retirement: 5 key steps

Key takeaways

  • Careful budgeting can help you adjust to living on a part-time salary.
  • Look for part-time work that uses your skills and provides fulfillment.
  • Focus on securing health benefits if you don’t yet qualify for Medicare.
  • Try to avoid tapping savings or claiming Social Security until you retire fully.

Retirement no longer needs to mean stepping away from a full-time career and never working again. Instead, more workers are transitioning into retirement by first shifting from full-time to part-time work. 

Working part-time can be a necessity for some people who haven’t saved enough, who lose their jobs, or face burdens like caring for aging parents. Or, a "phased" retirement approach can be by choice. Some workers choose to make money from their hobbies or passions and embark on what’s known as an encore career—a second vocation that’s more about pursuing fulfillment and purpose than it is about earning a paycheck.

In most cases, though, a combination of need and preference inspires people to include part-time work in their retirement planning, says Chris Farrell, author of Purpose and a Paycheck: Finding Meaning, Money, and Happiness in the Second Half of Life. Says Farrell: "Living off your accumulated savings is not realistic for many people, but you also spend your life gaining a wealth of skills and knowledge. The notion that at some arbitrary age you’re going to walk away and never use that knowledge again is not attractive." 

Whatever your reason for pursuing a phased retirement, transitioning to part-time work means focusing on the following 5 key issues that affect your lifestyle and finances.

1. Examine your budget

Part-time work typically means less income. That’s why it’s critical to scrutinize your spending and calculate whether a part-time schedule will support your budget. Remember that some expenses may fall, such as transportation costs if you no longer have a daily commute. On the other hand, expenses like health care may rise as you age.

If part-time income won’t support your current expenses, consider cuts that will make it feasible. Look to discretionary spending, which may be more flexible when you’re no longer working full-time. For example, you may be able to vacation at cheaper times of the year. However, Farrell warns that making small changes to your budget isn’t always enough. In some cases, you may have to make larger changes, like downsizing your home.

Tip: Read Viewpoints on Ready to retire? You still need a budget

2. Think about what you want to do next

Stepping away from a full-time career is an opportunity to consider what you’re looking for in your work. Consider the values that are important to you. Do you want to move into the nonprofit space? Is it important to you to maintain social connections? Also, catalog your skills and determine what jobs would help you use them. And don’t forget to consider the things you don’t want to do. "Take 5 minutes a day to jot your ideas down as part of your planning," Farrell says.

Introspection alone isn’t always enough, Farrell adds. Also, reach out to friends, colleagues, and family and ask them for feedback on your skills, strengths, and potential next moves.

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3. Consider your job options

Knowing what kind of work you prefer to do helps you look for part-time work that fulfills those needs. In some cases, your current employer might offer a phased retirement program or will let you negotiate a part-time transition that allows you to maintain some benefits.

If you have to look for a new job, stay focused on your needs and preferences. For example, if you’re looking for flexible hours, consider self-employment options that leverage your skills, such as consulting or tutoring. You also may be able to pursue jobs aligned with activities or hobbies you love, or the causes that are important to you. Tap into resources at and

4. Focus on health care coverage

Transitioning to part-time work before age 65 means you won’t qualify for Medicare yet, so securing health insurance is essential.

Health care may be part of your retirement package or phased retirement plan. If you lose your job, you could pay for a COBRA plan that allows you to stay on your existing insurance for 18 months. It also may be possible to go on your spouse’s plan.

If these options are unavailable, prioritize finding part-time work that includes health insurance. For example, many large retailers offer health care benefits to part-time workers. Working in retail might not be your first choice for a second act, but even if you have to make that compromise, you can still focus on aspects of work that you enjoy or value, Farrell says. For example, if being social is a priority, you may enjoy being a salesclerk over being someone who works in the storeroom or office.

If you can’t find a job that offers health benefits, explore plan options on, which may come with subsidies to reduce premium costs.

5. Look ahead to full retirement

Your full retirement may still be on the horizon—and it may come sooner than you think if declining health or other issues prevent you from working even part-time.

To protect your future financial security, avoid tapping your retirement savings to supplement part-time income. If possible, keep saving for the future. For 2020 and later, there is no age limit on making regular contributions to traditional or Roth IRAs, though as always, the contributions are limited by your taxable compensation for the year. You can contribute to a 401(k) at any age as long as you’re still working for your employer.

Working part-time might also let you delay claiming Social Security benefits, which continue to grow until you reach age 70. That way, you’ll have more money available should you need or want to stop working later.

If you do have to fully retire earlier than you hoped, consider working with a financial professional to revisit your savings, spending, and investment strategies. A financial professional can help you make changes that can help you adapt to your new circumstances and enjoy your life.

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This information is general in nature and provided for educational purposes only.

Views expressed are as of the date indicated, based on the information available at that time, and may change based on market or other conditions. Unless otherwise noted, the opinions provided are those of the speaker or author and not necessarily those of Fidelity Investments or its affiliates. Fidelity does not assume any duty to update any of the information.

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