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Should You Take a Phased Retirement?

An older woman is standing outside holding her dog thinking about taking a phased retirement.

Americans are living and working longer, which means traditional retirement isn’t right for everyone. Today’s flexible work environments are enabling more workers to scale back hours, rather than quitting all at once. For some, phased retirement isn’t a choice — it’s a financial necessity.

We ease into our careers — through high school jobs, internships, family businesses, volunteering — so, why not ease out of them? Phased retirement can help you make a successful transition to full retirement. Working part-time at the end of your career has many advantages, but consider:

  • Does it make more sense to work full time until you turn 65 and start getting Medicare?
  • Will you still be able to contribute to your 401(k) as a part-time employee?
  • Would your phased retirement income support your current lifestyle?
  • How much more could you receive in Social Security benefits if you delayed until full retirement age (FRA)?

How it Works

There are no rules for how to structure a phased retirement. No one knows your job better than you. Based on your job duties and requirements, you might propose a reduction in hours to part time, generally 20 hours per week. Or you might ask to work a couple days per week from home. You might start taking Fridays off, or working every other week. It’s up to you and your employer to come to a mutually beneficial arrangement.

Some questions you’ll want to ask:

  • How will my salary and benefits be impacted?
  • Will I still be able to contribute to my 401(k) and get matching contributions?
  • Will I still be able to use my health insurance?
  • How will this affect other benefits, e.g., tuition reimbursements, savings programs, profit sharing?

Design Your Own Phased Retirement

Not every job is suitable for phased retirement. If your job is flexible enough to make it work, consider yourself lucky. Phased retirees continue to benefit from the social interaction, mental activity and structure of work, while building new routines outside the workplace.

More experienced workers often have knowledge that is beneficial to employers. The transition period is a prime time to capture what you know about the industry and the company. Develop a proposal for your phased retirement, including anything that you want to pass on, such as:

  • Knowledge (things you know about your industry and your company)
  • Operations management (what you know about keeping your workplace running)
  • Vendor management (the relationships you have built and maintained)
  • Skills (things others in the workplace rely on you for)

If you have been at your company for a while, you probably have insight into work procedures, hidden problem areas, underutilized talents and places where things could be improved. Think seriously about what you have to offer your employer during a phased retirement. And don’t be afraid to ask for what you want.

Calculate Reduced Pay and Benefits

Cutting back hours likely means reducing your pay. If you go from working 40 hours per week to 20 hours per week, you’re also likely to lose benefits such as health insurance and retirement accounts.

If you wait until you are 65, your health benefits will be covered by Medicare. And, you might be able to negotiate with your employer to keep adding to your retirement account and getting matching contributions. If not, it’s a good idea to continue growing your savings and investments in your own IRA or Roth IRA while you’re working.

Create a budget using your reduced salary. Include any new expenses such as insurance you will have to pay on your own as well as any new income sources, such as Social Security benefits. Would you be able to live on this income?

Working on Social Security

Once you begin taking your monthly Social Security payment, you can’t change your mind. It’s an irreversible decision. So, if you choose to start getting benefits at age 62, you’ll be accepting up to a 30 percent reduction in what you would receive if you waited until your full retirement age.

You can continue to work after starting Social Security benefits, but if you are younger than your full retirement age, your benefits will be reduced $1 for every $2 you earn over the annual earnings limit ($17,040 for 2018).

You will continue to pay into Social Security so long as you’re working, but you might want to consider how it will affect your overall employment record. The amount of your Social Security benefits is determined by how much you made in your 35 highest earning years.

If you have not yet worked 35 years, it would be worthwhile to continue working full time until you’ve reached at least 35 years in your employment record. Create an account at to see your current estimated benefits.

As with any career choice, it is up to you to weigh the costs and benefits to make the right decision for you. Under the right circumstances, a phased retirement is a great way to transition into the post-work chapter of your life. Don’t sell yourself short. Think about what you bring to your job and present your proposal to your employer. You might be able to reach an agreement that is beneficial to everyone.

[Any reference to a specific company, commercial product, process or service does not constitute or imply an endorsement or recommendation by National Endowment for Financial Education.]

Ver este artículo en espanol: ¿Deberías jubilarte de forma progresiva?