PensionReforms' summary and comments

"Phased retirement" is where an employee stays with the same employer but gradually reduces work hours in the transition to full retirement.

Baby boomers in the United States are saying they want phased retirement - a recent survey by the American Association of Retired Persons showed that nearly 40% of workers over age 50 would be interested in it.  However, it's not common.  A 1990s review of experience showed that phased retirement became more common with age but, by age 65+ only one in seven workers became part-time employees and only one half of those stayed with the same employer.

Phased retirement also seems to be a white collar phenomenon and associated with higher incomes, wealth and education (and also for workers with long job tenures).  "Managers" also seem to have fewer opportunities than "professionals (engineers, lawyers, accountants, clerical workers).

Employers seem receptive to the idea as well - in a survey, 73% of employers would allow it.  However, only about one quarter of employers had formal policies - positive attitudes from them tended to be associated with size of employer but even there informal policies seemed to be more important.  The risk of being sued for 'unfair' application of policies under federal pension laws may be one reason for this.

"The last decade has seen improved understanding of how the employer's offer is constrained and shaped by the economic environment and government policy. Four problems influence the form taken by that offer: 1) pensions; 2) selection of eligible workers; 3) health insurance; and 4) flexible hours."

How to fit Defined Benefit pension benefits into phased retirement seems particularly problematic.  Until 2006, federal law prohibited the payments of both a pension and pay from the same employer.  That has now been relaxed but is still prohibited before age 62 (PensionReforms doesn't understand why that might be so).  Defined Contribution plans have not had that same problem but, for some reason, still cannot, without penalty, pay a benefit (and pay) before age 59½.

Health insurance is another potential obstacle - whether or not it is available to part0time employees.  Surprisingly, federal law appears not to provide an obstacle here.

"Phased retirement offers potential benefits for employees, employers, and society in general. But, to date, phased retirements are rare in part because employers confront problems when they seek to implement them. Particularly salient are the problems of pensions, selectivity, health insurance, and flexible hours. But employers can and do find ways around these problems. Moreover, some of the problems will diminish in the future, and phased retirements are thereby likely to become more prevalent."

PensionReforms suggests that phased retirement has the potential to benefit everyone - employers, employees, taxpayers (reduced dependence on state-provided benefits) and the economy (continued productivity of older workers).  As the baby boomers move into retirement, their skills need to be retained.  (file size 361 KB)  140