Phased Retirement: What Does It Mean And How Does It Work?

Retirement is changing. Around 19% of adults ages 65 and older are employed today, according to Pew Research Center. In 1987, only 11% of older adults were still working. Multiple factors are causing this shift, including people living healthier, longer lives and changes to Social Security that allowed workers to start collecting their full retirement benefits at 67 instead of 65. But something else is different about the retirement landscape: phased retirement.

If you’re nearing retirement age but want to keep working in a scaled back way, consider phased retirement. Here’s everything you need to know about this type of work arrangement and whether it makes sense for you.

What Is Phased Retirement?

The AARP describes phased retirement as, “a broad range of flexible retirement arrangements.” This could mean an employee cutting back on their hours with a company or working for them in a different way.

So, there’s no hard rule on what it needs to look like. You could work part time, switch to a less demanding role or work remotely from your favorite vacation spot.

Phased retirement can be a smart financial move if you’re ready to step back from full-time work but still want to contribute to your pension. It’s also a solid option to consider if you’re unsure about quitting your days at the office cold turkey.

While it’s still a relatively new concept, there’s a growing interest in it among older workers. According to the Harvard Business Review’s recent survey¹, 68% of workers ages 50 or older would like the opportunity to move into retirement gradually. However, only about 36% of global employers offer phased retirement to everyone on staff.

How Does it Work?

Phased retirement allows older employees to ease into retirement while maintaining an income to support themselves.

Work arrangements may include part-time employment, seasonal work, temporary positions and job-sharing arrangements.

Example Of A Phased Retirement Program

Emory University² is one of the few employers that offers a phased retirement program. Here’s a breakdown of how its program works:

• The phased retirement commitment must be for a defined duration, spanning a minimum of six months to a maximum of three years.
• Throughout this period, you’ll adjust your work hours, reducing them by anywhere from 10% to 50%, while maintaining a minimum of 20 hours per week.
• By participating, you agree to retire at the end of the specified timeframe.
• Your pay will be adjusted to reflect the reduced workload during phased retirement.

Who Is Eligible For Phased Retirement?

Eligibility requirements on phased retirement varies from employer to employer. If your workplace offers a phased retirement program, you’ll want to check with the HR department for more information.

Here are the eligibility requirements for the Emory University program to give you an idea:

• Be at least 60 years old
• Have given 10 or more years of service to the university
• Be in a benefits-eligible position
• Have a history of acceptable work performance

Pros And Cons Of Phased Retirement

While it may seem like a no-brainer for those not quite ready to quit the workforce, it has downsides. Weigh these pros and cons before talking to your employer to make the most informed decision.

Pros

• Smooth transition. Phased retirement allows you to gradually transition from full-time work to retirement rather than quitting work all at once. This way, you’ll have some time to adjust to a lighter workload instead of experiencing a sudden lifestyle change.
• Flexibility. You can continue to supplement your retirement income and build your nest egg without working a rigid schedule.
• Maintaining social connections. Even though retirement promises relaxation, loneliness often sneaks in for many retirees. By staying involved in the workforce, even if it’s just part time, you get to maintain a bit of social connection.
• Retaining skills and knowledge. You can continue contributing your expertise to the workforce while having more work-life balance. So, if you’re worried about feeling bored, uninspired or unchallenged in your golden years, consider a phased retirement.

Cons

• Financial uncertainty. Flexibility also comes with a degree of uncertainty. You may have to navigate reduced income while simultaneously drawing from your retirement savings and benefits.
• Career impact. Though this is not always the case, a reduced schedule or less demanding role could impact opportunities and skill development.
• Health care coverage. Changes in your employment status during phased retirement could also affect your health care coverage and benefits. Federal law doesn’t prevent employers from reducing health benefits unless they made a legally enforceable promise to continue them.

What To Consider Before Giving Phased Retirement A Try

Before ditching your 9 to 5 schedule completely, you’ll want to take a good look at your financial situation. Are you financially ready to make the switch to phased retirement? Think about your savings, how much you’ll need in your golden years and how much income you’ll have during phased retirement.

You’ll also want to consider how it might change your health care coverage. Will you still be covered by your employer’s plan? Or will you need to explore other options like Medicare or private insurance?

And remember, don’t make hasty decisions. Take the time to weigh the pros and cons and chat with your HR department to gather all the necessary information before taking the plunge.

Is It Right For You?

Just like how a traditional office job is not for everyone, phased retirement is not a one-size-fits-all solution, either. Whether or not it’s right for you depends on factors like your financial situation, career goals and lifestyle preferences. So, even though some may find it to be the perfect fit, you might prefer to dive straight into full retirement or continue working full time until you’re ready to call it quits.

Start by having a chat with yourself about what you truly want and what makes the most sense for you. Consider also talking to a retirement-focused financial planner and a career counselor. They can offer insights tailored to your situation and help you map out the best course of action.

Sources:

1. Redesigning Retirement, Harvard Business Review
2. Phased Retirement, Emory University

Jamela Adam is a personal finance writer covering topics such as savings, investing, mortgages, student loans and more. Her work has appeared in Forbes Advisor, Chime, U.S. News & World Report, RateGenius and GOBankingRates, among other publications.