Phased retirement is a type of retirement that allows individuals to transition from full-time work to full retirement gradually. It is a flexible option that provides individuals with the opportunity to work part-time, reduce their workload, or pursue other interests while still receiving a portion of their retirement income. If you want to learn more about retirement options, check out The Saving Dude.
Because of sites like Fiverr and Upwork many folks that would have historically retired, now have the option to work anytime and anywhere to keep them in the workforce while experiencing many of the benefits that come with retirement. In this article, we will explore what phased retirement is, how it works, and the benefits and drawbacks associated with it.
What is Phased Retirement?
Phased retirement is a type of retirement that allows individuals to transition from full-time work to full retirement gradually. This is becoming more and more prevalent in 2022 and 2023 as inflation reduces the purchasing power of retirees and the stock market reduces their total income. It is a flexible option that provides individuals with the opportunity to work part-time, reduce their workload, or pursue other interests while still receiving a portion of their retirement income.
Phased retirement can look different for everyone, here are some examples:
- Gradually reducing one's work hours (some orgs won't allow this)
- Pursuing part-time work or alternative work arrangements
- Taking advantage of flexible work arrangements offered by one's employer
How Does Phased Retirement Work?
The process of phased retirement starts with an individual making a plan to transition from full-time work to retirement. This plan typically involves reducing one's work hours, pursuing part-time work or alternative work arrangements, or taking advantage of flexible work arrangements offered by one's employer.
Individuals who opt for phased retirement may also choose to start receiving retirement benefits while still working, either through a traditional pension plan or a 401(k) plan. However, the amount of benefits received may be reduced if the individual is still working and earning a salary.
How to Execute a Phase Retirement Plan
First you should determine which path you would like to go down.
- Gradually reducing one's work hours (some orgs won't allow this)
- Pursuing part-time work or alternative work arrangements
- Taking advantage of flexible work arrangements offered by one's employer
Each of the potential paths above require a conversation with your financial advisor or a clear understanding of how you are going to pay your bills during retirement. If you have your finances in place, then take a look at the paths below.
Path 1: Reducing your hours
After you have your finances in place you should set up a conversation with your manager. Set expectations with your manager about what you want to accomplish. How many hours do you want to work, what do you expect to get paid, and how long you would like this arrangement to last.
Once you have an agreement in place it is time to start reducing your hours and doing the things you love!
Path 2: Part-Time Work
In this path, you might have the option to retain your current role and just reduce hours, or you may be seeking a different type of job. If you are looking for a different type of job you can either quit your current role and try to find a new one, or you can find a new job and then quit your "career".
There are so many part-time roles out there these days that I believe many people who are looking to retire should absolutely consider a part-time role for the first few years. As long as they are physically and mentally able to continue work, I don't see any reason why we all shouldn't.
Path 3: Flexible work arrangement
Some organizations will allow you to take on a "consulting" role or something similar. In this case, you may no longer be doing the same type of work you had in the past, but now you have the ability to work when and how you please.
This is a great option if your employer is willing and able to make this arrangement for you.
Benefits of Phased Retirement
Phased retirement offers several benefits, including:
- Increased flexibility: Phased retirement provides individuals with increased flexibility to pursue new interests, travel, or spend more time with family and friends while still receiving a portion of their retirement income.
- Reduced stress: Phased retirement allows individuals to gradually reduce their workload and relieve stress associated with their job, providing more time for leisure and relaxation.
- Opportunity to transition smoothly into retirement: Phased retirement provides individuals with the opportunity to transition smoothly into retirement, allowing them to maintain a sense of purpose and financial stability.
Drawbacks of Phased Retirement
However, phased retirement also has several drawbacks, including:
- Reduced income: Phased retirement may result in a reduced income, as individuals receive a portion of their retirement benefits while still working and earning a salary.
- Increased healthcare costs: As individuals age, their healthcare costs may increase, which can be a significant burden for those relying on retirement benefits for financial support during retirement.
- Difficulty finding part-time work: Individuals who opt for phased retirement may face difficulty finding part-time work or alternative work arrangements that are compatible with their schedule and interests.
Conclusion
Phased retirement is a flexible option that provides individuals with the opportunity to transition smoothly from full-time work to full retirement. It offers several benefits, including increased flexibility, reduced stress, and the opportunity to transition smoothly into retirement. However, it also has several drawbacks, including reduced income, increased healthcare costs, and the difficulty of finding part-time work.
It is important for individuals to consider the benefits and drawbacks of phased retirement and to plan accordingly to ensure a comfortable and secure retirement. Tools such as online retirement calculators, financial advisors, and resources such as SmartAsset and PocketSmith can be helpful in making informed decisions about phased retirement.
In conclusion, phased retirement is a type of retirement that allows individuals to transition from full-time work to full retirement gradually. It offers a flexible option for individuals looking to get out of full time work, but not quite ready to retire. While the label might be new, the concept is most likely not entirely new to everyone.
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