Phased Retirement: A Comprehensive Guide

Approaching retirement age but not ready to leave the workforce entirely? Well, you’re not alone! According to recent surveys, nearly one-third of people aged 50+ express their desire to retire gradually.

This gradual transition, phased retirement, offers financial stability, meaningful engagement, and flexibility to explore new interests while avoiding the shock of a sudden retirement. But what does this model entail, and how can you make the most of it?

This guide will explore phased retirement, from eligibility and benefits to potential challenges and planning tips.

What is Phased Retirement?

Phased retirement is a flexible work arrangement that allows you to shift from full-time employment to full retirement gradually. Instead of ending your career abruptly, you reduce your working hours or adjust your responsibilities over time.

Currently, around 36% of companies worldwide now offer phased retirement options. Some big names include:

• Bon Secours Virginia Health System
• Herman Miller
• CalPERS
• Swiss Re
• University of California

Types of Phased Retirement Programs

Phased retirement programs come in various structures, each tailored to meet the diverse needs of employees and organizations. The most common ones include:

• Gradual reduction in hours: This model allows you to slowly reduce your work hours while staying in your current role. For example, you might work around 50% of your previous full-time schedule.
• Job sharing: In this arrangement, two employees split the responsibilities of one full-time position. This can include a retiree paired with a younger worker, each handling different shifts or tasks within the same role.
• Seasonal or temporary work: In seasonal industries like tourism, retail, or agriculture, phased retirement might involve working only during peak seasons. This way, you can remain part of the workforce without year-round commitments.
• Consulting and mentorship roles: Certain organizations offer mentorship or consulting roles to employees nearing retirement age. This approach benefits the retiring employees, who can pass on their knowledge, and the organization, which retains critical expertise.

Pros of Phased Retirement

While phased retirement can be advantageous for both employees and employers, it’s essential to weigh the potential downsides as well:

• Smooth transition: Phased retirement allows you to transition into retirement at a comfortable pace. During this period, you can manage the emotional and financial adjustments without the shock of an abrupt departure.
• Retention of experience: Organizations can retain valuable expertise and institutional knowledge by allowing older employees to work part-time or in reduced roles. This continuity is crucial for mentoring younger staff and maintaining organizational stability.
• Financial benefits: You can supplement your retirement savings while still receiving % of your incomeon (typically 50me. This can ease financial pressures and help you adjust your retirement plans according to your evolving needs.
• Enhanced work-life balance: Phased retirement offers the chance to enjoy more personal time while remaining engaged at work. This work-life balance can be ideal for those focusing on family, hobbies, or new interests without fully stepping away from their career.

Eligibility Requirements

Eligibility for phased retirement varies by organization and country. In the United States, federal employees under the Federal Employees Retirement System (FERS) or Civil Service Retirement System (CSRS) must meet specific criteria:

• Full-time employment requirement: Employees must have been employed full-time for at least three years immediately before the phased retirement period.
• Eligibility for immediate retirement:
  • For CSRS: Employees are typically eligible if they are at least 5d with 30 years of creditable service or 60 years old with 20 years of creditable service.
  • For FERS: Employees may qualify if they meet certain age and service combinations, such as reaching the Minimum Retirement Age (MRA) with 30 years of service or age 60 with at least 20 years of service.

Income Options

While in phased retirement status, employees can still draw partial retirement benefits, including post-work payments. Here’s a breakdown of the various retirement income streams available to support you through this period:

• Lifetime annuity with TIAA: At age 59½ or older, you can start a lifetime annuity on up to 100% of your accumulation balance with TIAA. While being irreversible, this option provides a stable income stream for life.
• Interest Payment Retirement Option (IPRO): If you want to preserve your principal balance, the Interest Payment Retirement Option (IPRO) is a great choice. With IPRO, you’ll only receive payments from the interest credited to your TIAA Traditional account balance. This allows your main accumulation to remain untouched.
• Minimum distribution option: If you’re 72 or older (or 70½ under the 2019 rule), you can take the required minimum distributions (RMDs) from your TIAA account. This ensure you meet the IRS requirements for drawing down your retirement savings.
• Cash withdrawals: For even more flexibility, phased retirees can take cash withdrawals from their retirement accounts once they reach 59½. Unlike other options, this lets you withdraw any amount without a minimum, and you can choose to access funds from both your contributions and the university’s contributions.

Is Phased Retirement Right for You?

Phased retirement offers a compelling blend of work and leisure, yet it's not a one-size-fits-all solution. If you're considering this gradual approach to retirement, here are some key factors to weigh carefully:

• Financial situation: Phased retirement typically involves a reduced work schedule and lower earnings, at least for some time. Make sure you have enough savings and other income sources to maintain your desired lifestyle with a partial paycheck.
• Health and energy levels: Phased retirement allows you to scale back work commitments, but it still requires a significant time and energy investment. Honestly assess your current and projected health and stamina to determine if you can keep working, even part-time.
• Reasons for cutting back: Consider why you're interested in phased employment. Is it to enjoy more leisure time, to gradually transition out of the workforce, or to keep your skills and social connections? Ensure your motivations align with what phased retirement can provide.

9 Simple Steps to Implementing Phased Retirement

The federal government has had a phased retirement plan since 2014, though it’s not mandatory at the corporate level. However, you can still advocate for a customized phased retirement agreement if your employer doesn't offer such a program. Here’s how:

1. Talk to colleagues with experience: Start by reaching out to coworkers who have transitioned into phased retirement or know someone who has. Their insights can guide you in negotiating terms, managing the transition, and balancing work with semi-retirement.
2. Define your retirement vision: Be specific about a phased retirement. Do you prefer flexibility in the work environment, a hybrid work setup, or the freedom to focus on particular projects? Tailoring your vision based on what’s most meaningful to you can make your case more compelling.
3. Detail your new role responsibilities: Outline precisely which of your duties you’ll maintain and which ones you’ll delegate. Think from your employer's perspective: if a capable junior employee could assume some of your responsibilities with your guidance, mention this.
4. Set realistic salary expectations: Adjust your salary expectations for the reduced hours and responsibilities. While a pay cut is likely, presenting a thoughtful, realistic compensation package shows you understand the financial implications for your employer.
5. Address organizational challenges: Identify any recurring challenges at your workplace that your expertise could alleviate. You strengthen your case by positioning phased retirement as a solution to these challenges. For example, you might take on special projects that others can't handle due to time or skill constraints.
6. Highlight mentoring opportunities: Use your expertise to mentor new employees. With many companies facing tight training budgets, your ability to train and support team members can be valuable.
7. **Initiate a thoughtful conversation:**Schedule a meeting with your supervisor Once you've prepared your plan. Starting this discussion well in advance, ideally a year or more before your intended start, can ease any concerns about your commitment.
8. Propose regular checkpoints: Present your phased retirement as a trial with periodic reviews. This allows you and your employer to assess the arrangement’s effectiveness and adjust as needed.

Phased Retirement in Practice: Case Studies

Let's delve into these case studies to understand better how phased retirement operates.

1. Stockholm University, Sweden

In 2003, Sweden introduced a phased retirement program for state employees, allowing individuals aged 61 to 65 to reduce their working hours while receiving a partial pension. Stockholm University, as a state institution, implemented this program to provide employees with a gradual transition into retirement.

Participation:

Between 2003 and 2006, approximately 28% of eligible employees opted for this phased retirement program. Notably, more women participated in the program than men, underscoring demographic trends in phased retirement preferences.

2. U.S. Office of Personnel Management

The U.S. Office of Personnel Management (OPM) implemented phased retirement regulations on August 8, 2014, with agencies beginning participation on November 6, 2014. This initiative allows qualified federal employees to transition to part-time work, with a minimum of 20% of their work hours focused on mentoring.

Participation:

A report of 2020 reveals that approximately 632 federal employees had entered phased retirement, with 454 completing the program and fully retiring. This is significantly below the initial annual Congressional Budget Office projection of 1,000 participants.

Wrapping Up

To sum up, phased retirement offers a balanced path for those nearing retirement but wanting to keep a foothold in their careers. With its flexibility in scheduling, role adjustments, and the chance to ease financial and emotional transitions, phased retirement is an attractive option.

If you’re exploring flexible work arrangements, check out our job board. This platform connects professionals with top-tier companies worldwide, offering flexible job opportunities, including four-day work weeks and remote positions, perfect for those seeking work-life balance and a rewarding career.