Ease Into Your Golden Years With Phased Retirement
Leaving the workforce doesn’t have to be an all-or-nothing plunge into the unknown waters of retirement. By opting for a more gradual exit, often called “phased retirement,” you can ease in and avoid having to cope with abrupt changes to years-long routines, connections with coworkers — and monthly income.
You can tell yourself that you won’t miss Doug microwaving smoked fish dip in the break room, but even the absence of workplace annoyances can create a sense of loss. And bigger challenges can come from the sudden loss of a steady paycheck. A 2024 survey found that more than half of American workers would prefer not to face all of those changes at once, favoring a gradual transition from full-time work to full-time retirement. Phased retirement can help you slowly adjust to your new life while maintaining financial stability.
What Does Phased Retirement Look Like?
For some, phased retirement means fewer hours with their current employer, such as three days a week instead of five. Others choose to pursue part-time work in a different field altogether. Some launch consulting practices, turn hobbies into businesses or work as independent contractors. Finding an approach that works for you can let you continue earning income— and even set your own hours.
Maximize Income and Benefits
The transition from a regular paycheck to relying on retirement savings and Social Security can be jarring. But continuing to earn part of your former income gives you time to adjust to a new retirement budget.
Remaining on the payroll part time may also let you keep some benefits, particularly health insurance. If you retire before you’re eligible for Medicare, an employer health plan may save thousands of dollars compared to buying private insurance on your own.
There’s also the question of timing your withdrawal strategy in an uncertain market. If you happen to exit during a downturn, you might have to sell investments at unfavorable prices to cover expenses. A part-time income can offer a cushion for economic uncertainty.
Pad Your Retirement Savings
Every year you don’t withdraw money from your retirement accounts is another year those assets have the potential to grow. If you need $60,000 annually to live comfortably and you’re taking in $2,500 a month from part-time work, you’ll only need $30,000 from retirement savings each year. That income might also give you the flexibility to delay claiming Social Security benefits, increasing your monthly benefit by about 8% for each year you wait beyond full retirement age until you reach 70.
Test Drive Your Retirement Plan
You know how to go to work every day, but what will not going to work feel like? You’ve been yearning to restore that vintage Datsun 280 sports car in your garage, or maybe you want to put in the hours to become the league pickleball champ. Working three days a week instead of five gives you time to figure out what sorts of activities you want to fill your days with — and whether those activities are still appealing when they’re everyday events rather than rare treats.
Making It Work
Phased retirement doesn’t work for everyone; some jobs can’t be done part time, your savings or financial obligations may limit flexibility and some employers simply don’t offer it. A Financial Professional can help you assess your options. When it’s workable, phased retirement can help turn a daunting leap into a gradual, steady step toward your next chapter.
Sources
https://www.principal.com/retirement-expectations-evolve-workforce-ages-according-principal-survey
https://www.ssa.gov/benefits/retirement/planner/delayret.html