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Phased Retirement Plan - Would You Choose It?

The phased retirement idea was born in Sweden in the 1970s and gained a foothold in the U.S. soon after. Sarah Rix, a policy adviser at AARP who worked on the issue in its early years, said it has been hard to quantify how many people have taken part in such programs because most are informal. A 2010 study by AARP and the Society for Human Resource Management found that 20 percent of employers had phased retirement programs in place or planned to start them.

A phased retirement plan is when a company allows an aging employee to “officially retire”, but keeps the employee on payroll with the ability to scale back their number of work hours or become more selective on which projects they take on. In other words, it gives retirees a gentler way to ease into retirement without the company losing experienced employees and long-standing business ties. Also, businesses that support phased retirement plans see it as a way for employees to transfer knowledge to their replacements and to mentor younger workers. More importantly, the phased retirement plan allows the company to let its boomer-aged employees take unpaid leaves of absence to give retirement a test run, switch to part-time status ahead of a full retirement, and gives retirees a chance to return to part-time work.

Phased retirement has been most widespread on university campuses and, to a lesser degree, among government and health care workers. It has been far less common among blue-collar workers. This is because some jobs are easier to compartmentalize that others. For example, a professor who was teaching 2 classes a week can opt to reduce their schedule to only 1 class per week. The salary savings might go toward hiring a less experienced, less expensive instructor. Also, many formal phased retirement programs let employees maintain health insurance, vacation and other perks, and continue building up their retirement benefit. Others are more like consulting agreements, with retirees returning to work as independent contractors without benefits.

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Source: AP-NORC Center for Public Affairs Research, May 2013

http://www.apnorc.org/news-media/Pages/News+Media/aging-america-seeking-softer-retirement-landing.aspx