Taking retirement for a test drive

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Many people approach retirement with a feeling of uncertainty. Uncertainty that they have enough savings. Uncertainty about what they’ll do with their time. Uncertainty that they can deal with the loss of regular social interaction and sense of purpose they get from work. Uncertainty, in general, that retirement is right for them at this time.

If that describes you, then maybe a retirement ‘test drive’ might work. This increasingly popular arrangement is called phased retirement, in which employers reduce the working hours and provide partial retirement benefits to some of their older workers for a period of time. This is often a win-win: it gives workers a preview of their retirement and allows them to continue bringing in income, and it allows employers to keep their more experienced workers for a bit longer at reduced cost to mentor younger workers.

Phased retirement is a good deal for many workers. It certainly follows the current trend toward working retirements. A full three-quarters of retirees today say they plan to work part-time, according to Bankrate’s latest Financial Literacy Poll. Phased retirement allows workers to stay in the same fields in which they have decades of experience, and in their familiar work environments. If you’re looking to retire and do something completely different, then this may not be right for you. But for many workers, phased retirement allows them to ease into retirement so the transition is not so sudden and jarring. Sixty-four percent of workers in all age groups envision some form of phased retirement, according to a survey by the Transamerica Center for Retirement Studies.

Phased retirement is very new, however. Only 11 percent of employers have some form of phased retirement, and official policies are in place in only 4 percent of employers, according to the Society for Human Resource Management. This means the legal and financial implications have not been worked out. For example, some pension rules prohibit employers from providing any benefits, such as medical benefits, to workers who have not fully retired.

Nevertheless, there is widespread support for such arrangements, on the part of both workers and employers. Workers often underestimate the support that employers have for phased retirement. Only 21% of workers believe employers support part-time work for preretirees, but actually 48% of employers support it, according to the Transamerica Center survey.

The federal government is among the leaders in offering phased retirement to its employees. It started a program in the fall of 2014 that allowed participants to work half-time for up to three years after they reached retirement age and receive half of their annuities. The program is expected to help the government relieve some of the talent drain as 31 percent of its workforce is projected to reach retirement eligibility by September 2017. Participants in the phased retirement program are required to spend at least 20 percent of their work time mentoring younger workers.

There are a few reasons many private sector employers may be reluctant to openly announce their support for phased retirement. Many simply don’t know about it. Lots of people still view retirement as an overnight transition, where you’re going to work one day and sitting on your front porch the next. Many employers assume their retirees are ready to move on to the next phase of their lives and wouldn’t be interested in continuing to work. Some may be afraid of being accused of age discrimination.

Another reason is that employers tend to offer this arrangement only to select employees that they want to keep. Although official phased retirement programs are rare, the majority of organizations have made informal arrangements on a case-by-case basis, according to Towers Watson, a global professional services firm. Other employees in the organization may resent that this benefit isn’t offered uniformly, including younger workers who often have their own challenges in their personal lives.

If you’re approaching retirement and phased retirement may be of interest to you, here are some ideas for starting the conversation:

1. Raise the subject with your employer. If you’ve worked in your organization for a while, you probably have a feel for how your employer regards such arrangements. You also know your work record. If you think your employer might be receptive, you will likely have to broach the topic, since the employer is not likely to.

Rachel, a comptroller at a small New Jersey construction firm, retired and then a year later, out of boredom, proposed to go back to work for another two or three years part-time. Her employer was immediately enthusiastic about the idea.

2. Be specific about what you would do. Define for your employer what your role would be as a part-time employee. What specific problem could you solve for them? This is where you might have to get a bit creative. Maybe you could mentor interns or new hires, helping them get up to speed quickly? If you’re an accountant, maybe you could help out for a few months each tax season? Maybe you could cover for employees during the summer or Christmas holidays, when many take vacation? Is your employer short-handed in some areas where you could help out? Are there any needed tasks that are being put off because no one has the time to work on them?

3. Consult your human resources department to see whether it’s feasible and what the implications are, for both you and your employer. Knowing that the legal and personnel issues are covered will assuage any concerns or hesitation on the part of your supervisor.

4. Be flexible. Your employer may be open to the concept, but have different ideas for how you could contribute than you envisioned. They might propose a different project or time of year for you to work than you had in mind. As in all work negotiations, you’ll need to be flexible and decide what’s most advantageous for you and your situation.

5. Be savvy in technology. If you can work remotely from home, this gives you and your employer more options. Rachel, in the previous example, was able to work part-time from her home, accessing the company’s software over a network and using video conferencing and instant messaging. If the role you envision requires use of technology, you’ll need to demonstrate proficiency with those tools.

You should remember that phased retirement will have effects on your finances. If you decide to shift to part-time work, instead of continuing to work full-time, your salary will be reduced as a result. This means less income that you could be saving for retirement. It may also mean a lower direct benefit pension. Because Social Security retirement benefits are calculated based on your 35 highest-income years, your Social Security benefit may be lower than for someone who continued full-time work.

Also note that if you become a part-time worker, you may no longer qualify for employer health benefits. If you’re under age 65, you’re not eligible for Medicare, so you may need to find private health insurance for yourself and your family members for those few years. Additionally, some employers offer life insurance and disability insurance. If you’re covered by such policies, you will want to find out how they may be affected by a change to part-time work.

 

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