Phased Retirement Can Benefit Workers and Employers

Don’t look for a specific plan or product, and it may not work for all companies, but phased retirement is a coming trend, AARP says.

Several reasons have contributed to the growing idea that retirement may be a phase that stretches over several months or helps people prepare for a second act, says Kerry Hannon, careers expert at AARP and author of several books for job hunters, including “Great Jobs for Everyone 50+.”

“Most people are living longer, healthier lives,” Hannon tells PLANSPONSOR. “Many workers are OK with trimming back their hours, and they are terrified of outliving their assets.” When a near-retirement age employee cuts back hours or stays on as a consultant and mentor to junior staff, it has so many benefits, Hannon says. It’s critical for companies to hold on to some of the talent that would otherwise be lost.

“The face of retirement, has changed and it’s really changed with the Baby Boomer generation,” feels Cyndi Hutchins, director of financial gerontology, Bank of America Merrill Lynch. “When you think about longevity, when previous generations looked at retirement, retirement was that last phase, and it was relatively short: maybe 10 or 15 years.”

But now that many people are living 25 or even 30 or 40 years in retirement, Hutchins says it is more common for people to ask themselves if they can really live a life of leisure for such a long period. A bucket list can be exhausted within two or three years, she says. People then begin to think of other things they want to do to stay relevant and mentally stimulated. They may not want to continue in the same job or the same field, but may welcome an opportunity to try something different.

Hutchins agrees that the value of human capital is a contributing factor to the growing attention being given to phased retirement. “Employers are starting to look at the value that an older worker can bring to the younger members of the workforce,” she tells PLANSPONSOR. 

One thing that came out of the Merrill Lynch Bank of America study, “Work in Retirement: Myths and Motivations,” Hutchins says, is that about half the people surveyed said they planned on taking a break of two to three years, but then would re-engage in some kind of work for a longer period. “Their level of engagement varies between full-time and part-time,” she says, and many will likely cycle in and out of work, alternating periods of employment with leisure.

The number of survey respondents who said they would like to have some kind of work was even higher, Hutchins says: 72% of people older than the age of 50 said they wanted to work. That statistic alone indicates a very high adoption rate if phased option were offered by employers, she says.

Retaining retirement-age workers might not suit all types of companies or all types of employees. However, Hutchins notes that as the definition of retirement is changing, fewer people seem attracted to a traditional retirement without any work.

“We’re not yet seeing it in huge droves,” Hannon says. However, she is particularly excited about the federal government’s decision last summer to create a form of phased retirement. “I think it’s fabulous,” she says. “It’s exactly what the aging population is looking for.” The program went into effect in November.

Phased retirement for government workers will be a slow rollout, Hannon says. According to the Congressional Budget Office, about 1,000 workers will take advantage initially—out of the 2 million or so workers in the Federal workforce. “But it will gain steam,” she says, and companies may start to explore other options for their employees nearing or at retirement age. is a nonprofit that partners with industry to provide programs for people who are retiring. Hannon explains that in one instance, establishes fellowships and Intel, the technology manufacturer, pays benefits during an internship period. 

Often, Hannon says, the internships turn into regular employment. It’s similar to a private/public partnership, she says, designed to train workers who want to pursue a second act. It is similar to phased retirement, because Intel provides some structure for workers while they make their transition.

AARP’s list of best companies for workers older than 50 has a number of innovative models, Hannon says. Scripps, for example, allows workers to phase out and continue full benefits. In staged retirement, eligible employees ages 55 and older can collect full-time benefits and dip into their retirement funds while working part-time. Some employees who work 16 or more hours a week are entitled to full medical and prescription drug coverage, among other benefits.

Hutchins points out there can actually be a cost savings in some cases, especially if the employer is keeping an older worker part-time. “In many cases, you don’t have to provide benefits,” she says. “If they’re over 65, they can access Medicare.”

Hannon says smaller firms or nonprofits might find it useful to have older employees remain employed on a contract basis. The company won’t have to pay for benefits, but they can still retain the wisdom and institutional knowledge of these older workers. This can also work for startups that want to recruit older workers.

Phased retirement is evolving, and it’s an exciting movement, Hannon says. “Everyone’s trying to dip their toe in—they know there is huge segment of population that is going to want to keep working,” she points out. The question is how to make it a win for everyone. “We know employers are not upping wages—but for an older worker who wants to stay in the game they’ll have to make concessions.”

One factor to keep in mind are the intangible gains. “Think about the cost of training a new employee,” Hutchins says. These costs can be high, and it’s one of the reasons employers don’t like turnover. “If you can benefit from keeping an older worker in the workforce and allow them to systematically train employees who are already in place, that is a big win for the employer.”