Why More People Are Trying A Phased Retirement

Next Avenue readers know that the U.S. workforce is aging. The ranks of workers age 65 and older has nearly quadrupled to more than 11 million since the mid-1980s, according to a report by the Pew Research Center. The trend toward an older workforce will continue, largely thanks to the combination of increased life expectancy (on average) and lower birth rates. The Bureau of Labor Statistics predicts adults 65 and older will account for 57% of labor force growth over the decade ending in 2032.

That said, most workers eventually retire. Surveys show that the concept of gradually transitioning from full-time work to retirement — the catchphrase is "phased retirement" — is popular.

Fidelity Investments’ "State of Retirement Planning" study notes that two-thirds of those it surveyed across generations hope for phased retirement — steadily cutting back their work hours over several years before saying goodbye to colleagues for the last time. The Allianz Life 2024 annual consumer survey finds 47% of its participants think retirement should be a slow transition away from full-time work.

A Way To Test Drive Retirement

Phased retirement is an attractive choice for several reasons, especially among employees who have spent decades developing work-related knowledge and skills. They may not be quite ready to stop using their accumulated expertise, yet they're eager to leave behind the demands of full-time work (and endless exhortations to do more with less).

Perhaps continuing to earn an income, even though it's adjusted lower to account for fewer hours on the job, will ease the financial transition into retirement. Less time at work allows near-retirees to experiment with different activities to learn what may be fulfilling in their post-work years.

"It is an appealing idea for people," says Joe Casey, an executive coach and author of "Win the Retirement Game: Outsmart the 9 Forces Trying to Steal Your Joy." "It gives them more control and another option between continuing to work full-time and full-time retirement."

However, most companies haven't bothered to build an established glide path toward retirement for their older employees. That is, until recently.

Not only are phased retirement programs getting more attention from management, but even organizations without plans for adopting such a program increasingly offer employees the option to shift to more flexible work schedules, part-time jobs and the like. The choices go under different names, but the overall impact is to create more practical and gradual transition avenues toward retirement.

Preserving Institutional Memory

"It feels like progress has been slow," says Catherine Collinson, chief executive officer and president of the nonprofit Transamerica Institute and Transamerica Center for Retirement Studies. "But progress is happening."

Odds are management will look favorably on phased retirement and related programs in the years ahead. For one, management wants to retain experienced labor for a few more years in a tight labor market. For another, organizations want to encourage experienced employees to pass on their intangible knowledge to younger generations before they leave.

Employees are eager for phased retirement opportunities, too.

"What I see in the data and my interpretation and the survey findings, is the world of work is evolving; employer business practices are evolving," says Collinson . The Covid-19 pandemic alone accelerated the adoption of remote work, hybrid work and other opportunities that didn't exist five years ago.

Formal Vs. Informal Programs

Let's pause for a brief definition. Formal phased-retirement programs usually establish a set schedule over several years toward reduced hours and pay. Benefits are often maintained during the transition period. Formal programs can require mentoring and knowledge transfer to other employees.

Employers with formal programs typically have a highly skilled workforce — colleges and universities, government and technical professions. Management in these skill-dominated industries appreciate the option of retaining experienced employees longer, buying time for critical knowledge transfers and workforce succession planning.

Informal phased retirement programs are more common. The classic informal arrangement is a negotiated deal between an employee and boss that sets the parameters for a gradual exit. In addition, benefits options that enable greater flexibility on the job aren't necessarily designed with older workers in mind, but they are useful for constructing a transition path to retirement. Flexibility is useful for employees at other stages in their career and lives, including caregivers.

"You want it to be as inclusive as possible. So, when you're saying you're offering part time, people won't automatically put you out to the pasture and say, 'Look, you're retiring,' " says Emily Dickens, chief of staff, head of government affairs and corporate secretary for Society for Human Resource Management. "It's like, 'Look, I want to do something different and part time is an option,' no matter what age range you are in."

How Common Is This?

There is no nationally representative data on phased retirement, but the survey evidence is suggestive. Take the results from " Workplace Transformations: Employer Business Practices and Benefit Offerings " survey by the Transamerica Institute. Only 35% of employers have a formal phased retirement program, and 28% say they plan to implement one in the future.

Benefits that offer the option to create a transition to retirement can include flexible work schedules (available at 59% of companies surveyed), the ability to adjust hours as needed (54%), and enabling the switch from full-time to part-time (and vice versa) (36%).

Curious to learn more about phased retirement, I met with Stephen Burks, 74, who is an economics professor at the University of Minnesota Morris. The University of Minnesota has a formal program for tenured faculty, and he recently completed his four-year phased retirement. He joined the faculty at Morris in 1999 and specialized in experimental and behavioral economics and the economics of the U.S. trucking industry. (Burks drove tractor-trailers for a living for 10 years ending in 1986 before deciding to get his Ph.D. in economics.)

He started thinking about phased retirement about six years ago. Two years later he started his phased retirement, doing 75% of a professorial workload for 75% of the pay in the first year. He ended the transition at 35% pay and activity his last year. He kept his benefits.

Progress Trails Aging Workforce

An advantage of the program is that his schedule became considerably more relaxed since he no longer had to participate on committees and other university services. He did suffer a setback when he had to have triple bypass heart surgery. Happily, he recovered fine, and he tacked on another course the following year to make up for the missing semester.

"I have to say I liked it," says Burks. "I honestly don't think there was very much negative."

The evidence is overwhelming that the workplace has become more age-friendly in recent decades although progress has been on the slow side considering the aging of the workforce and the population.

Whether the approach is a formal phased retirement program, a much larger embrace of flexible work arrangements, or some combination of benefits, establishing a clearly understood roadmap for employees eager to retire gradually seems like a classic win-win for both management and workers.

By Next Avenue, Contributor