Is a Phased Retirement Right for You?
October 22, 2015 | Enjoying Retirement
When registered nurse Ann Moyer turned 60, she found herself at a crossroads: Her ailing mother needed care, which Ann wanted to provide—yet she wasn’t quite ready to retire from nursing. “I wanted to do both. But if full-time nursing had been my only option, I probably would have had to say ‘I can’t do this anymore’ and leave nursing early.”
Instead, she took advantage of a program offered by her employer, Mercy Health Systems based in Janesville, Wisconsin, that gives older employees the opportunity to design their own flexible working arrangements. The Work-to-Retire program gives employees age 50 and older with five years of service the opportunity to work reduced schedules, and employees age 55 and over with 15 years of service can work seasonally (to accommodate snowbirds who split their time between summer and winter homes) while maintaining part-time benefits.
The program allowed Moyer to work part time while caring for her mother. Since then, she’s cut back even further as she inches closer to full-time retirement. Today, at age 66, she has no set schedule; occasionally she’ll work a shift at one of the system’s clinics, teach medical interpreters or help train new staff. Next year, she’ll retire for good. “The flexibility has allowed me to meet the obligations that come with this stage of life. It’s worked well with my physical capacity at my age. And it gives me time to pursue other passions that I want to explore during this next chapter in my life.”
Moyer is one of about 100 employees who’ve taken advantage of Mercy’s Work-to-Retire program, launched a decade ago to help slow the brain drain as Baby Boomers reach retirement age. “Many of our employees have 20, 30 or 40 years of experience. It’s hard to put a value on what they know. So we had to think creatively about what it would take to get them to stay,” said Kathy Harris, vice president of human resources at Mercy Health Systems. “Our Work-to-Retire program has helped us retain some very good people.”
Today, 8 percent of U.S. employers offer a formal phased retirement program, and 10 percent offer an informal program, according to a 2015 report by the Society for Human Resource Management. While not yet a mainstream offering, the concept of phased retirement is gaining traction. Within the last year the federal government began giving its agencies the option to offer ‘partial retirement’ to employees. Under its program, eligible employees—some as young as age 55—may elect to cut their work schedules in half, receive half their pension annuity and hold on to their health benefits if they spend 20 percent of their work time mentoring the next generation of federal workers.
As an exit strategy, phased retirement is a potential win-win. Employers can slow the exodus of older workers; Harris says Mercy’s turnover rate is now among the lowest 25 percent in the nation. And employees who want or need to work later in life can do so under a potentially less demanding schedule, giving them more time for hobbies or family responsibilities.
Taking advantage of phased retirement, however, can create financial complications for those nearing retirement. So if you’re eligible for such a program, be sure to get a full understanding of the impact.
- How will your employer-sponsored benefits be affected? Some companies provide health insurance to part-time workers. Find out what you may be eligible for and how many hours you’d need to work to receive coverage. And if you are slated to receive pension benefits, know that they are typically tied to salary. So in some cases, working fewer hours for less money may adversely affect your payout, according to AARP.
- What’s the potential impact on your Social Security benefits? A phased retirement plan could also impact your Social Security benefits. Benefits are based on your average monthly earnings for your 35 highest-income years, so if you’re in your peak earning years when you decide to scale back—especially if your earnings are reduced for several years—you may end up with a lower Social Security benefit.
- Can you afford to do it? If you’ve got a financial plan in place, it probably assumes you’ll work full time until you retire. By cutting back on your earnings—even for a few years—you may be putting your plan in jeopardy, so be sure to talk through any consideration of phased retirement with your financial professional.
If it works financially, phased retirement can be a great alternative to the all-or-nothing approach to retirement. For Moyer, Mercy’s Work-to-Retire program is not only allowing her to ease into her new life of retirement, it’s giving her a chance to say goodbye to the old one gradually. “My coworkers are like my family,” she said. “It would have been very hard for me to just walk away. This is a really nice way to avoid severing the relationship. And it works for everybody.”