Thinking About Phased Retirement?

Posted Wednesday, June 27th, 2012| Comments (6) rule
In this economic climate, you might want to think twice before signing up
Kevin E. Cahill, PhD
Research Economist
Sloan Center on Aging & Work, Boston College

Phone: 617.552.9195

One way older Americans consider combining work and retirement is to keep their jobs and reduce their hours. This is often referred to as “phased retirement.” Phased retirement is different from other kinds of job transitions later in life, such as bridge jobs (i.e., those that fall between career employment and complete labor force withdrawal) and re-entry (sometimes referred to as “unretirement”). Because phased retirement doesn’t involve a change in employer, ramping down is much easier. The advantages from an employee’s point of view are that there’s no need to interview for a new position and learn the ins and outs of a new environment and culture. The advantage from an employer’s point of view is that there are likely to be fewer disruptions from an aging workforce.

The gist of the retirement literature is that older workers in the United States may prefer phased retirement to a job change later in life, but the choice is simply not an option because employers are reluctant to offer such arrangements. As a result, researchers have focused largely on barriers to phased retirement from the employers’ end. What would discourage employers from accommodating older workers’ requests for reduced hours?

At least three reasons have been identified. First, employers might be constrained by legal and regulatory requirements, such as the Employee Retirement Income Security Act (ERISA) of 1974, which sets minimum standards for private-sector pension plans. For example, federal laws may prevent older workers from remaining with their current employers if they want to begin receiving pension benefits. Second, employers might have a financial incentive to let older workers go, because they’re expensive, both in terms of salary (even adjusting for their higher productivity relative to other workers) and in terms of their fringe benefits, such as vacation and sick-time accruals and health insurance costs. Third, from a practical standpoint, employers might simply find it cumbersome to juggle requests from older workers for part-time schedules, seasonal schedules, and occasional time off.

Human resources specialists have invested a lot of energy trying to removing these barriers. But maybe that’s the problem. Everyone has been so focused on barriers to phased retirement encountered by employers that no one has stepped back and asked, “Is phased retirement good for employees?”

The key to this question is the focus on phased retirement – staying with one’s current employer – as opposed to gradual retirement more generally. Older employees who request phased retirement are sending a signal to their employers that they’re ready to begin the transition to retirement. This is not to say the employees aren’t dedicated to their employers — just that they’re ready to focus on other aspects of life, as well. Many of us would consider that a good thing. The problem is, when push comes to shove and economic conditions necessitate job cuts, part-time jobs are often the first to go, because they are the least disruptive to operations. So, by requesting phased retirement, older workers might have just stepped forward to be first on the chopping block.

We’re still in the midst of a post-recession economy that has been more sluggish than most of us have ever experienced. Jobs are returning, but not quickly. While unemployment may be off its highs, it’s still above 8 percent and has been for more than three years straight, and counting. Now might not be the best time to express an interest in ramping down.

Bottom line – for many older workers who want to remain with their current employer, those persistent barriers to phased retirement could be a blessing in disguise.

Cahill, Kevin E., Michael D. Giandrea, and Joseph F. Quinn. 2011. “Reentering the Labor Force after Retirement.” Monthly Labor Review, 134(6), 34-42 (June).

ERISA Advisory Council. Report on Phased Retirement., accessed on June 21, 2012.

Kantarci, T., & Van Soest, A. 2008. “Gradual retirement: Preferences and limitations.” De Economist, 156, 113–144.

Quinn, Joseph F., Kevin E. Cahill, and Michael D. Giandrea. 2011. “Early Retirement: The Dawn of a New Era?” TIAA-CREF Institute Policy Brief (July).

6 responses to “Thinking About Phased Retirement?”

  1. Peter Sarver says:

    I took a 100% position as an apartment building manager and converted it into a 80% FTE, thereby enabling me to have more flexible hours to pursue other interests. That also gave the organization 20% it could invest in an Asst. Manager [who is primarily a services coordinator]. I may further downsize my job as time goes on. I’m 66 and drawing social security retirement. Phased retirement works for me and my organization. Peter Sarver, Syracuse NY

  2. In the early 90’s whilst working in an Australian University HR department we developed a policy of offering part time hours to our senior academic staff whilst maintaining full superannuation top up. This was embraced by senior staff for a variety of reasons. The benefits to the Uni were that we maintained our senior academics on staff when they might otherwise have left/retired with minimal notice, many pursued further formal studies and PhDs, they mentored junior colleagues, they kept their super contributions up, it freed up opportunities for aspiring academics and kept movement occuring without loss of precious knowledge.
    The important component of this programme is that it was supported across the campus and not seen as a negative to request part time work options, there was certainly no pressure on anyone to reduce hours. With a war for talent continuing in some sectors right now this is an option to be expolored in order to retain knowledge and skills in an organisation.
    Kristine Gatt

  3. This is an exhaustive analysis on the current condition of the senior workers. Yet the percentage of workers who want to stay on their jobs after the age of 65 is be minimal; most of the seniors are troubled by their aging body and they would want to take a break. Elders should seek for care services, which we provide, to maintain a healthy lifestyle.

  4. In the UK the extent to which employers offer phased retirement appears to correlate closely with their attitudes and policies concerning flexible working across the entire workforce.

    Surprisingly although it has been identified in employee surveys as the most valuable benefit employers provide, many employers still resist flexible working – whether due to lack of trust, lack of flexibility of approach, or – as cited in this article, “employers might simply find it cumbersome to juggle requests for part-time schedules, seasonal schedules, and occasional time off”.

    This being the case we need to stop thinking of this (i.e.phased retirement involving reduced hours) as a separate problem for older workers and start seeing flexible working as something that is generally needed and valued by all employees in different ways at different life stages.

  5. Dr Kate Barnett says:

    In Australia, the federal government is aware that a mass exodus by baby boomers will place unmanageable pressure on our Age Pension, given that most people do not have sufficient retirement savings. The other driver is that in our skilled economy we are facing shortages of skilled workers, so the view is that retaining workers and upskilling them makes economic sense. From the perspective of older workers, not having sufficient retirement savings, coupled with a wish by many to remain engaged in paid work, means that retirement age is being extended. To address the need for work life balance, the ideal solution is to work less hours, and retirement is increasingly being understood as a phased process rather than a shift from full time work to no work. There are a number of processes within organisations that need to be modified to support phased retirement, one of the most important being to develop an Age Management strategy as part of workforce planning. This includes individual planning of retirement intentions and phasing coupled with financial planning advice and support. In practice, this is currently the exception rather than the norm. Luckily my employing organisation is part of the exception – I have recently shifted to a 4 day a week which will phase down a day at a time, and it is proving to be a very effective strategy for me, and for my work team.

    Dr Kate Barnett
    Deputy Director
    Australian Workforce Innovation and Social Research Centre (WISeR)
    The University of Adelaide
    South Australia

  6. Michelly says:

    Thanks for the comment in which you raise a very intniestreg point.This abolition of the DRA will mean that an employer cannot retain a normal retirement age of 65, or any other age, unless it can be reasonable justified. If no employer-justified retirement age is expressed then any decision that an employer take to terminate an employee’s employment on the grounds of age will be unfair and potentially discriminatory. If an employer wishes to fairly dismiss an “older employee”, they will have to rely on the reasons set out in the Employment Rights Act 1996, such as capability or redundancy. They would also have to ensure that a fair, open and transparent process is followed.