Have you ever considered a ‘phased’ retirement?


Question: Paul from Alexandria: What are your thoughts about “easing in” to retirement? I think it sounds preferable to quitting work cold turkey, but I’m not sure the best way to go about it.

A: A ‘phased’ retirement – which simply means gradually reducing your work hours – can be a great way to carefully transition from work into the new chapter of your life. But there are definitely some things you’ll want to think about (and research) before going this route.

Assuming you work for an employer, one of the biggest questions you need to address is: Will your company even allow it? Because according to the Society for Human Resource Management (SHRM), it’s not very common – as of 2017, only about six percent of employers offer a formal phased retirement program. So, check with your HR Department. If it’s not offered, you’ll likely have to take matters into your own hands and talk to your boss (SHRM says informal or ad hoc programs are a little more common). Be specific about what you’re thinking (How many days will you work? What do you envision your role to look like? What pay are you expecting?) and be sure to illustrate why it’s worthwhile and valuable for the company to keep you on as part of the team.

Also, can you stay on the company healthcare plan during this transition? The number of hours you work may determine this. And once you reach age 65, your Medicare coverage depends on the size of your company: If it employs less than 20 people, you generally have to sign-up for Medicare; if the company is bigger, then you can choose to stay on the company plan and delay Medicare.

And, of course, what’s your financial situation look like? Fewer hours means a smaller paycheck. This could have a potential impact on your current lifestyle and create less of an opportunity to save for your full-time retirement. On the other hand, a paycheck is still a paycheck – and this income stream could allow you to leave your retirement savings untouched for a little while longer. Social Security is a consideration as well; if you’re younger than your Full Retirement Age and simultaneously claiming your benefit while working, your benefit could be reduced.

Here’s the Simply Money Point: There are a lot of moving parts to implementing a phased retirement. Be sure you think through all the ramifications before following through.

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