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How Phased Retirement Works

Traditional retirement usually involves an abrupt transition from your working years, with your career and retirement often separated by a single day. But that isn’t the only way. Along with the mini retirement trend, phased retirement—which involves gradually shifting away from your job and into your retired life over time—has become more popular.

Easing into retirement can have several advantages. Here’s what to know to help you decide whether this approach is right for you.

Advantages of a Phased Retirement

Gradually phasing into retirement offers several financial and emotional benefits. Depending on your circumstances, this could allow you to have a happier and more financially stable post-work life.

Reducing Strain on Your Savings

Retirees’ most often cited fear is running out of money. A sound plan can alleviate a lot of that risk, and a gradual retirement could be a core aspect of that plan.

Rather than relying entirely on your retirement savings for income, phasing into retirement allows you to supplement your savings with income from a job for a few years. You may not need to pull as much out of your savings as a result, reducing the risk of depleting it too quickly.

Continuing Health Coverage

Even if you have substantial savings, you may want to consider health insurance costs. This is particularly true if you plan to fully retire before you turn 65 since you won’t qualify for Medicare yet.

In addition to losing your employer-provided income when you retire, you also lose access to employer benefits. Many jobs don’t offer health insurance benefits to retirees. Accordingly, you may need to purchase a private health insurance plan, which could be expensive. Working part-time or reduced hours can allow you to maintain eligibility through your workplace plan.

Easing into Your New Lifestyle

The thought of retirement—with days spent however you wish, without the need to wake up to an alarm—is probably appealing. But sometimes that excitement can wear off quickly, and you could be left without a feeling of purpose. It can seem like there are more hours in a day when there’s nothing to fill them.

Phased retirement allows you to ease into it and figure out how you want to spend all that unclaimed time. Some retirees even find that a reduced workload provides the right balance and continue to work throughout retirement.

Options for a Phased Retirement

There’s no uniform way to phase into retirement. It’s a broad idea you can implement in any way you choose. That could mean reducing the number of hours you work at your current employer, taking on a new part-time job, or even working for yourself. The best choice depends on your situation and preferences.

Reducing Hours at Your Current Job

If your employer agrees, you may be able to scale back at your current job. That might mean working less in your current role or moving to another position that doesn’t require you to work as much.

If you have particular skills or knowledge the company values, you could work part time to train your replacement or provide consulting.

Taking a New Part-Time Job

Taking on a part-time job with a different employer may feel refreshing, as it could allow you to work at a slower pace with less stress. You may decide to switch to something completely new, exploring work in a field related to a personal interest or hobby.

Working for Yourself

Self-employment is also an option and might provide the most flexibility. Maybe you’re good at building things or have other hobbies you can turn into an income stream. A major benefit of taking this route is that you decide how you want to approach it. You can work as much or as little as you choose.

Factoring in Social Security

Social Security benefits might be a key component of your retirement income. Phased retirement presents some unique considerations concerning your benefits.

Your Timing

Claiming benefits before reaching full retirement age typically reduces your benefits permanently. The earlier you file, the steeper the reduction.

Your Earnings

If you claim your benefits while still working, they could be reduced further if you earn more than the allowable limit. This reduction is temporary and only applies if you receive benefits before your full retirement age. Once you reach full retirement age, your benefits usually will no longer be reduced due to your earnings, and you’ll receive credit for any benefits that were withheld before.

Also, keep in mind that income you earn while receiving Social Security benefits may mean more of your benefit could become taxable.

In general, it’s better to wait until you’re no longer working to file for benefits, but the decision depends on your circumstances.

Designing Your Optimal Retirement

These days, retirement doesn’t have to be an all-or-nothing proposition. If you’re hoping for a more gradual transition, consider winding down your career by moving to part-time work before fully leaving the workforce. If you could benefit from a personalized look at your situation and available options, reach out to a Bankers Life representative for helpful insight and guidance.

Bankers Life is a private company that is not Medicare, Medicaid or MaineCare and is not a governmental agency