Recently, I was interviewed by U.S. News & World Report for an article on phased retirements. I shared that, “Phasing into retirement can be a wonderful way to move into the next chapter of your life gracefully while still enjoying the rewards of working.” Indeed, retirement for the baby boomer generation and those younger is looking very different from the retirement of our parents. For many, retirement will be a long process of gradually winding down work hours and responsibilities rather than a firm date. There are advantages to this phased in approach and things to watch out for, too.
Our working life generally spans decades (sometimes 30, 40 years or more). Many times, it is difficult to imagine what life would be like without the routine a regular work week imposes. One of the great advantages of phasing in retirement is that it gradually allows time to explore what other activities, passions and interests might be fulfilling in this next phase of life. It is one thing to imagine what the possibilities are. It is quite another to actually have some time (and energy) to explore those options.
Some jobs and careers obviously lend themselves to a phased in approach to retirement better than others. However, with the advent of telecommuting, flexible hours and job sharing, it may be possible to structure a phase-in approach even with the most demanding of careers. Generally, employers are willing to consider options not previously considered to retain a valued employee even as a part-time or flex-time worker.
Before broaching the subject of a phased in approach to retirement, there are several important considerations to review:
A phased retirement will almost certainly mean a reduction in income. Will this reduced income still support your monthly budget? If not, do you have cash reserves or investments that you can tap into for additional cash flow? What about social security? If you are already at full retirement age, you may want to consider beginning to take social security to supplement your income.
Another key consideration is insurance. If you’re enrolled in your company’s health insurance plan, will you be working enough hours (generally 30 hours/week) to continue to be covered? If not, are you 65 and eligible for Medicare? If you are under age 65 and will not have employer-provided coverage, it’s important to consider health insurance (along with vision and dental) prior to deciding about part-time employment. Health insurance premiums can be high so you will want to avoid an unwelcome surprise right at the time your income will be reduced.
Corporate Retirement Plan
Finally, if you are contributing to a company retirement plan, will you still be eligible to do so even if working part-time? If so, will your part-time income be sufficient to allow you to continue to contribute? If you can do so, putting additional funds toward your eventual full-time retirement is a good strategy for reducing your income taxes and also gives you additional cushion when you ultimately move into full retirement.
The keys to a successful phased retirement are carefully reviewing your finances ahead of time to make sure you are ready for this change, talking to your employer honestly about your plans and timeline and then making the most of the additional free time you have to explore new opportunities for your next phase. As always, a well thought out plan is the best way to ensure a smooth transition.