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The Phased Retirement Alternative

Dear Bill:

Question: I’m turning 60 next year. While I don’t want to continue working full-time anymore, I don’t have the desire (or nest egg) to retire completely. What do you suggest?

-Doris, PA

Answer: Doris, how about a phased retirement? Instead of working 40 hours per week, talk with your employer about a reduced workload with a corresponding pay cut. The result could be just the answer you’re looking for.

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iStockphoto

Phased retirement is a new phrase being tossed around corporate America in recent years. While there are some really progressive employers with structured phased retirement programs, many employers have informal programs that most employees don’t even know exist.

Some employers allow workers over age 50 to work half-time at half-salary for up to three or five years while collecting partial pension benefits, if applicable. Often times, a half-time salary combined with a small pension or a monthly supplement from your own investment portfolio will result in a drop to a lower tax bracket.

Phased retirement is an attractive option for older workers because you continue earning an income while getting more free time for yourself. Your employer benefits by retaining a valued employee at a reduced cost. Often times an employer will free up those financial resources to hire an additional employee and improve productivity. It’s a win-win for everyone.

Bill’s Bottom-line: Unfortunately, many pension plans will not allow a company to employ an individual and distribute a full or partial pension benefit after they reach retirement age. What this normally means is that if you want your pension benefit, you’d have to retire and work somewhere else (which raises a whole new set of challenges). Will you like your new employer? Can you work for them part-time? Will the part-time pay be enough to let you live your life and maintain your standard of living?

Do your homework. Talk with your employer and other colleagues who have successfully navigated a phased retirement. Know your options before you leap.


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Bill Losey, CFP®, CSA, America's Retirement Strategist®, is the resident retirement planning expert for CNBC's "On the Money". He coaches women and couples nationwide with their retirement planning and investment portfolios. Bill is the author of Retire in a Weekend! The Baby Boomer’s Guide to Making Work Optional and he also publishes Retirement Intelligence, a free weekly award-winning newsletter. He can be reached online at www.MyRetirementSuccess.com.