Trying to figure out the best age to retire can be a little like trying to predict the weather – years in advance. There are pros and cons to retiring at any age. If no retirement age seems quite right for you, you may be interested in phased retirement.
What is phased retirement?
In a phased retirement, workers who are around retirement age reduce their work hours instead of leaving work entirely. The specific details of the arrangements vary from company to company. Some companies have formal policies, but this is not always the case.
Why is phased retirement appealing?
People may be living longer, but they don’t necessarily want to retire later. In fact, a 2024 study from Mass Mutual found that 63 is considered the ideal retirement age on average, according to both retirees and workers.
But even though people might want to retire early, they might not have the financial freedom to do so. Many people are struggling to save for retirement, and they may plan to retire late in order to catch up.
This plan can go also awry. Some people find themselves forced into an early retirement, whether or not they’re financially prepared; Transamerica found that 56% of people retire earlier than planned. This can happen for a few reasons, including having poor health or needing to care for someone else with failing health.
So we have some people who want to retire early but can’t afford to, and some people who want to keep working but can’t. Phased retirement can offer a compromise.
There may be emotional advantages, as well. A study from T. Rowe Price found that 20% of retirees are working full or part time, while 7% are looking for work. Although the motivations vary, they’re not all tied to finances, with 45% of people citing social and emotional reasons.
Sometimes people find that they do not like being retired. Many people identify themselves through their job. After retirement, they may struggle to find a new sense of purpose, and they may become lonely, bored and depressed. They may miss their coworkers and the daily structure that a work schedule brought to their lives.
Retirement can be a huge change, and change tends to be stressful. In some cases, a phased retirement may help to ease the transition.
What should you consider before deciding on phased retirement?
Before you can start your phased retirement, you need to make sure you’re ready.
- Do you have enough in your retirement savings? If you’re still trying to catch up, switching to part time might not be a good idea.
- Will you be claiming Social Security benefits? If you claim benefits before your full retirement age, the Social Security Administration will deduct $1 from your benefit payments for every $2 you earn above the annual limit ($22,320 in 2024), or $1 for every $3 you earn above a different limit ($59,520 in 2024) if you reach full retirement age that year.
- What will happen to your other benefits? Switching to part-time might involve losing your employer-based benefits. Keep in mind that you qualify for Medicare when you turn 65, regardless of your retirement status. You can’t enroll in Medicare early just because you retire early.
- Does phased retirement feel right for you? If you’re healthy and enjoy working, you might prefer to delay retirement instead. On the other hand, if you have adequate savings and no desire to work, you might prefer a full retirement.
Next, you need to see if your employer is willing to pursue the arrangement. If your employer already has a formal phased retirement program, you’ll want to learn the details of how it works and how you can qualify.
Otherwise, you’ll need to present your case for a special arrangement. If you focus on how your employer can benefit from your expertise while paying you less and while training a replacement, you may be able to make a convincing argument.
If you can’t work out a phased retirement plan with your current employer, you could look for other opportunities. For example, you might find a part-time position with a different company. Depending on your skillset, you might be able to switch to part-time consulting or contract work. Keep in mind, however, that these options involve their own risks and stressors.