Have You Considered a Phased Retirement?

When you’re about to retire but don’t want to live the quiet life just yet, there’s another option: phased retirement.

Over the next year, 18% of U.S. respondents say they’ll switch from full-time to part-time work before retiring, according to global consulting firm Mercer.

Part-time work can come from a current or new employer or from self-employment.

For many employees, phased retirement is appealing because it allows them to enjoy more free time without draining their retirement accounts. Retirement can last 20 or 30 years, so transitioning can allow for more time to grow their nest egg.

As well as giving people time to adjust psychologically, retiring in stages allows them to adjust physically.

As a result of the tight labor market, workers who want to retire gradually may find more support from employers who embrace phased retirements.

In order for phased retirement to succeed, other pieces must be in place. In particular, younger retirees may want to avoid filing early for Social Security, which permanently reduces benefits, and they are not eligible for Medicare.

That means having private health insurance, adequate savings, little to no debt, and perhaps even a way to save more.

But the key piece of the puzzle is the source of paid work. Without it, there is no phased retirement.

Companies onboard

As employers continue to struggle to fill jobs, phased retirement could become an important employee retention tool. As a result of the pandemic, people are beginning to take phased retirements and work in more flexible ways.

American College of Financial Services co-director Steve Parrish thinks phased retirement is the next demographic trend.

Parrish says that companies are facing “the brain drain of the baby boomers who are retiring.” Employers are keen, he notes, to find ways to keep and pass on to a successor the institutional knowledge of long-time workers.

Formal phased retirement programs are still rare in most companies, with only 6% providing them.

Informal agreements between employers and employees are more common, especially in small to medium businesses.