As much as we look forward to our retirement years, there’s no doubt that this new phase of life is an adjustment. That’s why many people are considering what’s called a phased retirement:

A phased retirement includes a broad range of employment arrangements that allow an employee who is approaching retirement age to continue working with a reduced workload, and eventually transition from full-time work to full-time retirement. Phased retirement may include a pre-retirement, gradual reduction in hours (or days) of work, then post-retirement, part-time work for pensioners who wish to remain employed. Part-time, seasonal, and temporary work or job-sharing are all work arrangements that can be a form of phased retirement.

 

What are the benefits of phased retirement?

Phased retirement can be a great solution if you’re not ready to fully retire but still want to slow down your work obligations. This way, you have more free time to enjoy your hobbies, travel, and spend time with your family while still earning an income.

Another advantage of phased retirement is the opportunity to maintain health benefits, which can be crucial for those nearing retirement age. Many employers offer health insurance coverage to their employees, and by working part-time, employees can maintain those benefits while gradually phasing out of work.

Overall, this can be a good solution for other financial reasons:

Two major financial motivators in retirement are driven by government benefits: Medicare and Social Security. And both have age considerations. Medicare doesn’t happen until age 65. Social Security shouldn’t happen until at least age 67 (the age when most future retirees reach their “full retirement age”).

The question, then, is what happens if you want to retire earlier than these ages? You may consider phasing out of work rather than just quitting. This way you can still afford to live a comfortable lifestyle in the period before your government benefits kick in. Phased working may help provide employer-provided health insurance until you qualify for Medicare, and it can offer a supplemental income bridge until you can file for your full Social Security benefits. (Forbes)

 

What are the cons of phased retirement?

One of the biggest cons to phased retirement is the potential reduction in salary and benefits. Some employers may not offer phased retirement as an option, or may not provide the same benefits and perks as full-time employees.

“We’re finding that informal arrangements exist at almost every employer, but formal programs are rare,” says Steve Vernon, a vice president at Watson Wyatt Worldwide.

Retirement plans and social security benefits may also be affected by choosing phased retirement, so it’s important to carefully consider the financial implications before making a decision.

 

When should you consider phased retirement?

Here is a helpful list of considerations from Experian:

Phased retirement isn’t for everyone, but it could be a good fit if:

• You enjoy working and want to keep up that part of your life as you age.
• You have a health issue that makes it difficult to work full-time.
• You like the idea of transitioning to a consultant or freelancer.
• You want to “try on retirement” to see if you like it. A phased retirement can help you take baby steps into life as a retiree.
• You’re looking for extra money so you can rely less on your retirement accounts for income.
• You have health insurance through your employer and are younger than 65—making you ineligible for Medicare.

Phased retirement has some potential drawbacks.

• Phased retirement could impact pension payouts. Rules vary from employer to employer. If your pension amount is based on your earnings, for example, then reducing your hours might also reduce your benefit.
• Not every retiree can opt for phased retirement. Many employers don’t offer it. Either way, some folks must continue working full time due to financial constraints.
• You’ll likely need the help of a financial professional. Phased retirement diverges from the typical course that many retirees take. For that reason, making an adequate retirement income plan may be more complicated.
• It might complicate your health care expenses. Your employer may not offer health insurance to part-time employees. If you’re too young for Medicare, you’ll be responsible for your own health insurance costs.

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