Phased retirement includes a range of flexible retirement approaches that would allow employees approaching normal retirement age the option to reduce the hours worked while phasing into complete retirement.

For employees, phased retirement may be seen as a benefit by many older workers. It allows them to gradually ease into retirement while maintaining a higher income than they would receive if they quit work entirely. It could also help employees prepare for greater retirement readiness.

“Changes in Social Security have made it easier for recipients to continue working after reaching full retirement age without losing their benefits; Americans are living longer, which means that retirees will need greater financial resources to support themselves. In 2020, the IRS allows for $18,240 of income per individual before affecting social security benefits (before reaching full retirement age).” For employers, phased retirement programs can be used to retain skilled older employees who would otherwise retire.

Employers can benefit from tenured employees knowledge and experience while reducing employer payroll and benefits costs. These employees may want to continue to make a meaningful contribution to your company, while working reduced hours. This concept may involve employees working remotely. During the Covid-19 pandemic, many workers are already becoming comfortable working remotely, and employers in some industries may derive continued benefits of a partially remote workforce.

Employers will likely be surprised at the number of workers willing to accept reduced hours or a lighter workload. A recent study from the Transamerica Center for Retirement Studies found “that nearly three

quarters of employers polled at 1,800 companies of all sizes reported that many of their employees expect to work past age 65 or do not plan to retire at all. In addition, 43% of working baby boomers are already contemplating a phased retirement. While 4 out of 5 companies surveyed said they plan to support senior employees who want to continue working, just 4 in 10 of the firms currently offer flexible retirement schedules.”

Working with retirement plan providers and benefit advisers can also help employees smoothly transition out of the workforce. They can consider the plan’s distribution options, financial planning opportunities and individual financial consulting, where appropriate, on how to make savings last.

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