Start Part-time Retirement with a Phased Retirement Plan - Episode 44
Is anyone interested in a part-time retirement?
The jump to retirement is a big change after working full time for many years or decades. But what if you could start with a part-time retirement? More companies are making this an option.
Today, I’m going to focus on an article called 'Employers Embrace Retiring In Phases,' which appeared in the March 16, 2022, issue of the Wall Street Journal.
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Benefits to Employees
According to the article, phased retirement programs “allow workers nearing retirement age to cut back on their hours while keeping some pay and benefits”
There are financial and psychological benefits for workers to cut back on hours rather than going straight from full-time work to full-time retirement.
They can continue to earn an income and do meaningful work while also having more time to pursue hobbies, spend time with family, or whatever they want to do in retirement. (I talked more about this in a previous podcast in early 2020 when I talked about the idea of a practice retirement in episode 18.)
Workers can also delay claiming Social Security by doing a phased retirement and continuing to earn an income instead of retiring immediately.
I often recommend delaying Social Security as long as possible because your monthly benefit amount will continue to increase for every month you wait, with the maximum benefit at age 70. (I talked more about the benefits of delaying Social Security in episode 11.)
Benefits to Employers
There are benefits to companies to offer such programs, as well. The pandemic has changed how business owners think about flexible work arrangements.
With the increased rate of retirements since the start of the pandemic, employers are looking for ways to retain those workers that have valuable skills that companies rely on.
The U.S. workforce is aging, and companies are recognizing they need to leverage that experience, because many companies are also experiencing talent shortages. We see this with the very low unemployment rates that we currently have in this country.
Phased Retirement Statistics
This unique employment situation means phased retirement arrangements are becoming increasingly available, as can be seen from the following stats:
- 38% of HR executives world-wide say they offer phased retirement, according to a survey by Mercer LLC. This is up from 17.2% before the pandemic.
- 23% of U.S. employers offered phased retirement in 2021 (up from 16% in 2016), according to a survey by the Society for Human Resources Management.
- Of that 23%: 8% have formal programs that generally target older workers who meet certain criteria
- 15% offer phased retirement on an informal basis, often to employees in hard-to-fill roles.
- Universities have offered phased retirement options to tenured professors for a long time, and federal agencies began using phased retirement in 2014.
But for many companies, this is a new concept they are exploring.
For example, Owens Corning, a company that makes building materials in Toledo, Ohio, launched a phased retirement program in 2020. The program allows salaried employees age 55 or older with at least five years of service to request to participate in a phased retirement.
If approved, employees can work part-time hours with part-time pay and full-time benefits, including health insurance, often for three to 12 months. Such programs would give companies time to hire and train a replacement before an employee fully retires.
Challenges for Employers
The challenge for employers is to determine how open or how restrictive to make such a program and what benefits to continue to provide for the reduced workload.
There is also the potential for lawsuits if some workers are allowed to participate but not all workers.
Then there are also rules about pensions and 401(k) plans that add complexity to the situation.
Those phasing into retirement may want to access retirement benefits to supplement their reduced paychecks, so they will need to find out how phasing into retirement will affect their company retirement benefits.
Bottom Line
More companies are adding the flexibility of part-time retirement as an employment benefit.
As an advisor that works with retirees and pre-retirees, we are happy to see this because this could open up some options for people who want to retire but may be simply holding on until age 65 due to health insurance costs.
If you are interested in the idea of easing into retirement, it might be a good idea to talk to your employer about your options.
A CERTIFIED financial planner™ professional can help you plan for your retirement. Schedule a call today so we can talk about your retirement situation.