Phased-In Retirement

by | Aug 21, 2020 | WWC WorthWhile Reading

Phased-in retirement is a concept taking shape in the business world.  Veteran workers are speaking up and presenting their creative ideas toward the usual “retirement process”.  We’ve looked at early retirement and thought it might be interesting to take a glance at another option.  For many different reasons, team members are expressing their desire to extend productive years beyond the “normal retirement age”.  The pandemic may have accelerated this desire, as lifestyles and goals are changing and presenting new concepts some are finding attractive.


Phased-in retirement has no succinct definition, as noted by an AARP white paper on the subject.  However, the term refers to a broad range of employment arrangements that allow a long-standing employee to transition from full-time work to full-time retirement.  It could include a pre-retirement with gradual reduction in hours or workload or part- time, then maybe leading into a post-retirement and/or even consulting work.  Although phasing-in retirement may be easier said than done, there is a general feeling among progressive companies that creating attractive options leading to retirement is being proactive in a life transition for their employees that is natural and inevitable.  Companies may also benefit by retaining valuable knowledge of skilled veterans while passing that knowledge along to new hires.


There are three main reasons workers choose to ease into retirement.  There may be more, but studies have identified the most popular reason is, of course, financial.  Most companies have either reduced or eliminated pension benefits and workers who are eligible for Social Security, with or without retirement savings, realize they cannot live comfortably on Social Security benefits alone.  Even those with savings and investments for retirement may prefer maintaining some form of compensation to minimize withdrawals from those accounts.


The second reason for some form of phased-in retirement is physical and mental health.  Older Americans want to remain active and productive.  They are living longer, are in excellent health and feel capable of continuing their work to sustain a meaningful, fulfilling lifestyle.  The majority of workers don’t necessarily get tired of their work, just of how and when they work.  Veteran workers are now of a mentality to enjoy life more, work less.  A transitional retirement program could be very attractive to employees who desire to remain involved in their career.


Thirdly, workers of retirement age are choosing to transition for personal reasons.  There are no boundaries outlining our personal desires, such as travel or time with family.  After a career at the daily grind, entrepreneurial spirit might lead to a new venture based on an interest, a passion, or a hobby.  More people feel there are no limits to what they can accomplish and the security in some form of continued employment fuels that incentive.


The initial buzz around phased-in retirement was strong.  However, there are many downsides to changing current processes.  Pension plans that do exist have documented rules and structure.  Healthcare benefits, profit sharing incentives and social security benefits are all impacted by hours worked during years worked.  Honestly, organizations have not really figured it out.  Choices are heavily dependent on individual companies and the laws that affect them.


Have a great weekend!


Source:  Karen DeMasters, The Shift to Phased-In Retirement, Financial Advisor Magazine, August 2020, page 8.