Phased retirement: What you need to know as you approach retirement age
If you’re nearing retirement age but not quite ready to punch the clock for the final time, this article will take you through why you may want to consider a “phased retirement.
Summary
Phased retirement involves slowly transitioning out of the workforce rather than stopping work altogether, all at once.
Phased retirements can take different forms, with some people transitioning to part-time jobs and others moving into seasonal or contract work.
Before phasing into retirement, it’s important to consider the potential changes it may mean for your income, healthcare plans, and more.
Unbiased can connect you to a financial advisor who can help you create a retirement plan to meet your goals.
What is phased retirement?
Phased retirement is more or less what it sounds like: Retiring in “phases” as opposed to ceasing all work-related activity all at once.
In effect, that means that someone who is approaching retirement age will slowly taper their workload off, switch from full-time to part-time employment (or possibly even start freelancing or consulting), or take on seasonal work.
It’s meant to slowly “phase” into retirement with a reduced overall workload, making a slower transition from employment to retirement.
The concept may be popular among those who want to keep working, but not full-time, as they age. That may be due to financial or health constraints or simply because they want a reason to keep getting out of the house, even though they have the means to stop working completely.
Phased retirement is becoming more common, too, as more than half of Americans expect to continue working beyond age 62, according to the most recent data available from the Federal Reserve Bank of New York’s Survey of Consumer Expectations. Further, that same data set shows that more than one-third expect to continue working past age 67 (full retirement age).
How does phased retirement work?
Phased retirement can take many forms. As noted, it may involve a full-time worker shifting to part-time work or even becoming a consultant or freelancer for their employer, working fewer hours.
It may also mean that a full-time worker “retires” from a full-time job and takes a part-time job somewhere else.
The main point is that phased retirement involves ramping down from full-time employment to full retirement through a series of tiers. This means they gradually retire over time and transition out of the workforce rather than stopping work all at once.
As such, there’s not really a definitive way that phased retirement works, as it can take many forms.
What are the advantages and disadvantages of a phased retirement?
The main advantages of a phased retirement are mainly two-fold for workers.
Firstly, it allows you to adjust — physically and mentally — to a new phase in life, which may not necessarily revolve around a full-time job. For some people, an abrupt retirement can be difficult to transition into, especially if they’re used to getting up at the same time every day, seeing the same people at work, and keeping their body or mind active throughout the day. So, phasing out slowly, rather than abruptly, out of that routine may be advantageous for some people.
Secondly, a phased retirement can help you continue to earn an income as you transition into retirement. As noted, this may or may not be something that all workers are concerned with, but for some households, continuing to work to the best of their ability is likely a financial necessity.
As for the disadvantages of phased retirement, the financial aspect remains front and center — someone transitioning from full-time work to part-time is likely to see their income reduced.
Depending on the employer, there may also be changes to benefits, like health insurance coverage, that need to be considered.
The pros and cons will, ultimately, depend on each individual’s specific situation.
What do you need to look out for if you choose a phased retirement?
If you choose a phased retirement, you’ll want to consider several things:
Your income needs, and how your income will be reduced as you work less.
Your social and psychological needs as you spend less time at work.
Any changes that may result in your healthcare plan or benefits.
What do you plan to do with your extra time?
Whether you plan to find another job, work seasonally, or even start your own business or volunteer.
It may be a bit morbid, but there is a link between early retirement and increased mortality. Those who retire and aren’t fully prepared for the changes to their income and lifestyle, can often experience an uptick in unhealthy habits or boredom.
As such, planning to fill your time, even if it’s an extra few hours per week as you gradually reduce your workload, can be important.
How do you know if phased retirement is right for you?
A phased retirement is not right for everyone, as there are many things to consider before you decide to end your career.
Some people may be forced to slow down due to health conditions or family obligations, while others may need to keep working as long as they can due to financial constraints.
In the end, someone considering a phased retirement must sit down, think about what they need and are capable of, and figure out what works for them.
Get expert financial advice
A phased retirement can take many forms, and prospective retirees will need to sit down and consider all of the ramifications of retiring before deciding on how to start their transition out of the workforce. But it can start by simply working fewer hours or transitioning from full-time to part-time.
If you need help figuring out if you’re ready to start phasing down your career, consider finding a trusted financial advisor who can help you put everything in perspective and offer expert financial advice.
Content Writer
Sam Becker is a freelance writer and journalist based near New York City. He is a native of the Pacific Northwest and a graduate of Washington State University. He has worked as a business and finance journalist and writer for more than a decade, working with media publications, brands, and experts in the field