Gradually cutting back your work hours to four days a week and then three or working 20 hours per week instead of 40 or 50 sounds appealing to many people approaching retirement age. You can work fewer hours and have less responsibility, but still have a place to go where you feel productive and have enough money coming in to avoid large retirement account withdrawals. However, phased retirement arrangements aren’t common because of a number of obstacles to making these programs work. Only 11 percent of early baby boomers gradually retired from their full-time jobs, according to a 2017 Government Accountability Office report. Here’s a look at some of the challenges of setting up a gradual retirement.
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Negotiating the arrangement. Only 6 percent of employers provide a formal phased retirement program, according to a 2017 Society for Human Resource Management survey of 3,227 human resources professionals. Another 13 percent of employers informally allow a reduced schedule or responsibilities prior to retirement. “Even though employers who offer formal phased retirement programs see benefits like worker retention, knowledge transfer, transition into retirement and workforce planning, very few provide this option,” says Susan Weinstock, AARP vice president for financial resilience programming.
Some managers say they are open to enabling workers to shift from full-time to part-time positions (31 percent) or take on a less stressful or demanding role (24 percent) as they approach retirement, according to a 2016 Transamerica Center for Retirement Studies online survey of 1,802 business executives who make decisions about employee benefits at for-profit companies. “In the absence of a formal phased retirement program, then it’s up to the employee to initiate a conversation with the employer,” says Catherine Collinson, president of the Transamerica Center for Retirement Studies. “Set forth a proposal in terms of the value you are going to provide. Mentoring and training your successor can only help your case.”
Qualifying for health insurance. Many employers provide health insurance only to employees who work more than a certain number of hours. If you drop down to part-time work, you may no longer qualify for the company health plan. “The low take-up rate of phased retirement may be due to the implications reduced work could have on employer-provided health and pension benefits,” Weinstock says. If you’re already age 65 and qualify for Medicare or are covered through a spouse’s plan, losing employer-provided health insurance may be less of an issue.
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A reduction in retirement benefits. Many traditional pension plans calculate your retirement payments using your earnings during your last few years on the job. “Obtain a copy of the summary plan description to understand exactly how phasing into retirement or shifting from full-time to part-time will affect your pension,” Collinson says. If you cut back your hours and reduce your pay, you may end up decreasing your future pension payments. If this is the case and you want a gradual retirement, you might be better off finding a part-time job with another employer or taking on consulting work so that your pension won’t be reduced.
Getting a 401(k) match. If you are in your 50s or 60s and haven’t saved enough for retirement, your priority may be earning and saving as much as possible to build a nest egg so you can retire in the near term. You may not want to reduce your hours and accept less pay if you are trying to fill your retirement accounts at the last minute. At some companies you need to work full-time to qualify for a 401(k) match or other employer contributions to retirement accounts that can help you build your savings faster.
Unplanned phased retirement. Phased retirement isn’t always about increasing your leisure time. Some older workers need more schedule flexibility to cope with health problems or caregiving responsibilities for a spouse or aging parent. Some employers might be willing to negotiate arrangements that help you manage these challenges of aging. “You certainly can go to your manager and show how much value you add to the company,” says Toby Haberkorn, a job search strategist and coauthor of “Best Job Search Tips for Age 60-Plus”. “You can be very specific and say, ‘If I can get a three-day week or I can work from home I can assure that the deliverables will be met.'”
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Justifying your reduced schedule. Managers and other employees may find it frustrating to work with someone who takes every Friday off or leaves at 2 p.m. each day. There may also be younger employees eager to climb the career ladder into positions currently occupied by baby boomers. Those who want to gradually retire may need to prove their continued value by being a consistent high performer, staying up to date with innovations in the field and learning how to use new technology. It can help if you are willing to mentor younger employees and pass on your acquired skills and institutional knowledge. “Baby boomers with high value skills who are retirement eligible are really catered to,” Haberkorn says. “They are in a situation where, because of their skill set and expertise, employers are willing to be very flexible with them.”
Emily Brandon is the author of “Pensionless: The 10-Step Solution for a Stress-Free Retirement.”
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6 Challenges of Phased Retirement originally appeared on usnews.com
