Is Phased Retirement An Option For You?

Phased retirement is an increasingly popular concept, although it lacks a formal legal or industry-standard definition. Broadly, it encompasses a variety of employment arrangements that enable retirees to continue working at a reduced workload, easing their way into a more relaxed retirement lifestyle.

You can think of it as having “one foot in and one foot out” of the workforce. It’s a gradual process of transition, where individuals begin to step back from full-time roles while still maintaining their connection to work.

It's important to note that there are no strict age guidelines—there's no rule stating that you must begin phased retirement at a specific age, such as 65. Instead, many individuals may choose to explore this option a few years earlier, perhaps at ages 63 or 64, depending on their personal circumstances and readiness for full retirement.

Current statistics indicate that around 21% of companies surveyed offer some form of phased retirement, with projections suggesting this number could rise to approximately 61% within the next five years. As the baby boomer generation nears retirement age, and with the workforce evolving, phased retirement is emerging as a significant trend to address the needs of both retiring employees and employers.

Phased retirement can take various forms, ranging from reduced hours to adjusted responsibilities. Employees can continue in roles that require similar skills to their full-time positions, but with potentially less pressure. For example, a long-time employee may have the opportunity to stay involved in a project, albeit in a less demanding capacity, such as a secondary role rather than a leadership position. This arrangement helps reduce stress while allowing them to continue contributing value to the organization.

Furthermore, varying work hours, such as transitioning to a 30- or 35-hour workweek, are common in phased retirement plans. Employees may be attracted to this approach if they are not ready for full retirement, whether due to financial, emotional, or professional reasons. The desire to maintain some level of engagement, without the full stress of their previous roles, drives many individuals toward exploring phased retirement.

Types of Phased Retirement Options

1.  Formal Policies: Some organizations have structured phased retirement programs with established guidelines and procedures. However, many businesses may still operate informally, based on employee relationships and tenure. As interest in phased retirement grows, it's likely that more companies will develop formal policies.
2.  Bridge Jobs: These roles serve as a transition, allowing individuals to step away from high-pressure positions while still remaining active in the workforce. Bridge jobs could be entirely different from one’s previous employment, like moving from an executive role to working part-time in a retail position. This option caters to those who want to remain engaged but without the pressures of previous responsibilities.
3.  Retirement and Rehire: In this scenario, an employee retires from their current position and is subsequently rehired. Although this may seem confusing, it sometimes arises as a requirement for company policy or structure, permitting individuals to return in a less demanding role.
4.  Part-time Work with a Different Employer: Many individuals opt for part-time roles in different organizations, utilizing their skills and education while reducing their work hours and responsibilities. This flexibility can be beneficial for those who value their professional background but wish to scale back their commitment.
5.  Phasing a Little: This approach involves making small adjustments to one’s work schedule. For example, an employee working 50 hours a week may choose to reduce their hours to 40 or even 35, allowing for a more gradual transition toward retirement while still engaging in work.

Conclusion

Phased retirement is a valuable option for those approaching retirement age, allowing for a smoother transition tailored to individual needs. Whether driven by financial necessity or emotional readiness, phased retirement offers flexibility to continue working while transitioning to retirement.

For many, the best path involves open communication with their employers about what phased retirement options might be available or feasible. Establishing a positive relationship can facilitate meaningful discussions and help create a balanced approach that benefits both the employee and the employer. As this trend continues to evolve, more organizations may embrace phased retirement as an essential strategy in workforce management.

Darryl Jarmosco, CFP®, ChFC®, specializes in retirement planning in Grand Haven, MI.

Securities offered through Registered Representative of Cambridge Investment Research, Inc. a Broker/Dealer, Member FINRA/SIPC. Advisory services through Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor. Cambridge and Jarmosco Financial Advisory are not affiliated. Cambridge does not offer tax or legal advice. Fixed insurance services offered through Jarmosco Financial Advisory