To hear some people speak of it, phased retirement has become the new Golden Years. By maintaining one foot in the work force and one in retirement, people in phased retirement...
NEW YORK To hear some people speak of it, phased retirement has become the new Golden Years.
By maintaining one foot in the work force and one in retirement, people in phased retirement, it is said, can experience the best of both worlds.
The truth is that phased retirement isn’t a panacea. If you’re interested in a partial retirement, you need to take a hard look at whether you’re truly prepared to take this major step.
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You may find, for example, that you stand to gain a lot financially by putting off phased retirement for just a few more years.
Also, phased retirement has been packaged as the process of reducing work hours, but you want to make sure you have examined all the alternatives before you settle on an approach.
The first step is to determine if you can afford it.
Reducing work hours will almost certainly result in a cut in pay, but it could also affect pension and other important benefits.
For example, just 39 percent of companies said they provided disability insurance to phased workers, compared with 93 percent that provided the same to full-time workers, according to a survey conducted by human resources consulting firm Watson Wyatt.
And about 90 percent of companies surveyed said they offered health insurance to phased workers, compared with 99 percent for full-time workers, according to the Watson Wyatt study.
Once you have the list of what benefits, if any, might get cut, ask yourself if you can afford to pay for the cut items on your own. You may decide that you can do without some benefits, such as disability insurance, but not health insurance.
Taking a cut in pay and in hours worked could trigger a dramatic decrease in pension distributions. (The impact of phased retirement on your pension will vary by plan, so it’s best to first discuss this with the plan’s administrator.)
And once you take a cut in pay, you might not be able to afford future contributions to your 401(k) or IRA.
Knowing the alternatives will be important if your employer isn’t amenable to reducing your hours. Just 16 percent of employers offer an official phased retirement, the majority of which are universities and other education institutions, according to data from Watson Wyatt.
When approaching your employer, try to avoid the words “phased retirement” unless the employer has an official phased-retirement program, said Steve Vernon, retirement specialist for Watson Wyatt and author of “Live Long and Prosper!,” a book about phasing into retirement.
The better approach is to ask if you can move to a part-time work schedule, he suggested.