Is a Phased Retirement Right for You?

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When most of us think about retirement, we imagine a time in our lives when we get to hand in our resignation letters, pack up our desks, and go from working 40 or more hours per week to having all the free time in the world. But while that sort of immediate shift might work well for some people, it's not always ideal.

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For one thing, going from a full-time work schedule to not having a schedule could upset your mental balance. Suddenly, there you are, with no immediate obligations or purpose other than to just plain exist. It's a scary prospect if you're not ready for it.

Then there's the financial impact. Sure, many folks save well for retirement, but dipping into your nest egg could be somewhat intimidating.

It's for these reasons that it pays to consider a phased retirement, rather than the all-or-nothing approach so many workers take. Even if you think you're emotionally and financially ready for retirement, easing into things slowly can often make for a much smoother transition.

How a phased retirement works

Under the traditional retirement model, you'd resign from your job and begin enjoying a life of leisure several weeks later with no work-related obligations in the world. With a phased retirement, you might work on cutting your hours and job-based responsibilities over time so that you're not going from fully employed to unemployed in a span of a couple of weeks.

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Here's an example. Say you're 66 and have enough money to retire, but you like your job and are really only opting to leave because the long hours and commute are taking a toll on you physically. Rather than instantly call it quits, you might talk to your employer about cutting your hours down to 30 hours a week for the next year, and then 20 hours a week the year after that. This way, you'll still get to do the thing you love, but with more flexibility and less stress.

Benefits of a phased retirement

Of course, phased retirements are generally employer-dependent. It's one thing to devise a plan where you gradually reduce your hours and responsibilities over time, but if your company doesn't agree, then you're back to square one. On the other hand, if your employer is willing to comply with that sort of arrangement, you stand to benefit in more ways than one.

For starters, you'll get to uphold a steady routine, which can be instrumental in staying mentally and physically active. According to research from the Institute of Economic Affairs, retirement increases your chances of suffering from clinical depression by a startling 40%. Working longer, albeit in a scaled-down form, can help you ward off mental health issues by keeping you occupied while giving you more time to adjust to the idea of retirement.

Additionally, retaining a portion of your income could work wonders for your retirement budget, both immediately and in the future. Imagine you're 66 and technically have enough money to retire and cover your living expenses, but you don't have enough savings to support multiple years of heavy travel. If seeing the world is a goal of yours, working 15, 20, or 30 hours per week for a few extra years could be just the thing to put that extra cash in your pocket. And because you won't be on a full-time schedule, you'll get to partake in some of that travel while you're younger, and you have the energy to enjoy it the most.

Finally, a phased retirement might help you get more out of Social Security. Imagine your full retirement age for Social Security purposes is 66, at which point you retire and collect your benefits in full. Those payments, coupled with your savings, might be enough for you to get by, but if you instead inch toward retirement and continue working part-time for a few extra years, that job-based income might help you avoid filing for Social Security immediately -- at which point you'll get an instant 8% boost in payments for every year you hold off up until age 70.

Now you may be thinking: this all sounds great -- if I could only get my company on board. But actually, phased retirements can benefit employers as well. Say you're a valued worker who knows the business inside and out. Losing you to retirement could constitute a sizable blow to your company, but if you're willing to slowly work your way out, your employer will have a better opportunity to find a suitable replacement. You might even offer to head up an internal training program to sweeten the deal and get that buy-in.

Of course, if you're miserable at work and can't wait to leave your job behind, then it pays to retire as soon as you can, provided you have the savings. But if retirement in its full-fledged form seems like a needless extreme, it pays to consider an arrangement where you creep toward it at your own pace.

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