Why Phased Retirements Can Be Hard To Pull Off

A traditional retirement is the culmination of a lifetime of work and is, typically, a person’s permanent withdrawal from working. A phased retirement is the gradual reduction of working hours, giving employers and employees the opportunity to adjust to a new working reality over a period of time.

Often, when a worker leaves employment, for retirement or another reason, there is a chaotic period of adjustment. A phased retirement or flexible work arrangements can help alleviate some of that chaos. That doesn’t mean it’s easy, though. Though some employers share a mutual interest with employees to phase retirements, many don’t have the systems in place to pull it off.

MarketWatch.com addressed this in an article titled, “Why are employers so bad at phased retirement?” The article explores some ways companies can offer phased retirement to employees, and some reasons that it doesn’t work for certain companies.


First, let’s discuss some of the ways companies phase retirements. MarketWatch.com cites a program that permits employees aged 55 years or older and who have at least 10 years of work history to cut their hours by 20 percent. That includes a corresponding 20-percent cut in pay, but permits the employee to keep their health insurance and pension accrual benefits.

Another program permits employees aged 60 and older who have at least five years of work history with the company to reduce their hours by anywhere from 20 percent to 50 percent. Employees could reduce their hours by even more if they’re willing to lose their health insurance benefits.

Yet another employer permits workers 55 and older with seven years of service to negotiate their own “glide path” to retirement — like a paraglider slowly heading toward a landing, moving from full-time employment to full retirement, while retaining benefits. There was yet another company cited in the MarketWatch.com article that permits any employee to switch to less stressful or complex duties or phase to part-time work — all the while, retaining health insurance if they work at least 25 hours a week.

So, there are many different types of phased retirement options, and it’s not hard to imagine companies being able to find a customizable solution that would work for them. That said, it’s simply not something that we’re seeing a lot of companies do.

Over time, I believe that more and more employers will offer phased retirement options. The MarketWatch.com article references a WillisTowersWatson.com report entitled “Working Late – Managing the Wave of U.S. Retirement.” In that report, 83 percent of the employers surveyed said that a significant number of their workers are nearing retirement. 54 percent of those employers believe that the loss of talent and experience from workers retiring will be one of the most significant labor challenges of the next five years.

It certainly can be a challenge to replace any experienced worker — much less a number of them at the same time. In fact, in the Willis Towers Watson report, they cite approximately four out of five employers ranked “orderly transfer of knowledge of the organization” as the number one concern when it comes to managing retiring employees. The report also cited that 60 percent of the employers felt that erratic retirements impact workplace productivity, and nearly one-third mentioned roadblocks to younger workers’ promotions as another concern. These concerns were nearly universal among younger and older aged workforces.

So it’s clear that most businesses, regardless of the age of their workforce, have some large concerns about how retirement is going to impact them2. Phased retirements could be a solution that could alleviate some of those concerns.

There’s another important discrepancy between employers’ impressions of their employees’ needs and how the employees view their own needs — and it’s the likelihood that employees have enough savings to retire. Willis Towers Watson reports that 71 percent of employers believe most of their workers who are nearing retirement age likely have enough. More than half of the employees themselves, though, said that they have financial concerns that could delay their retirement.

In fact, many of the respondents expected to have to delay retirement into their seventies. This, again, illustrates how phased retirements could find a middle ground between an employer’s needs and those of their employees. From an employer’s perspective, it could address one of their biggest staffing concerns: losing knowledgeable, experienced employees. And from an employee’s perspective, it could provide the financial assistance necessary to feel confident approaching retirement.

Talking about your unique situation with a financial services professional can be a helpful way to determine if you will want, or need, to consider a phased retirement.