Phased retirement is a process that allows employees approaching retirement age to incrementally decrease their workloads, rather than abruptly stopping work. Strategies of this type are often beneficial for both the employer and the employee for a number of reasons. The incremental retirement process may also extend into determining how income from a retirement account is received, allowing the recipient to structure the disbursements to fit his or her personal circumstances.
While the traditional approach to retirement is to formally stop working on a specific date, many retirees find this sudden change in their daily routine to be disconcerting. This can lead to a number of personal issues as the retiree and family members attempt to adjust to the new circumstances. One of the benefits of phased retirement is that the process allows everyone involved to gradually get used to the idea of curtailing work activities, while gradually introducing other pursuits into the daily routine.
There are several different ways to engage in a phased retirement strategy. One of the more common processes is to begin incrementally cutting back on the number of hours the employee works each week. At the same time, responsibilities are incrementally migrated to the employee who will ultimately perform those duties on an ongoing basis. With this model, the retiree can slowly get used to the idea of increased free time, which in turn makes the first months of retirement less of a change. The employer has the benefit of knowing that the employee taking over the vacant position is fully trained and capable of handing the workload.
Another approach to phased retirement involves migrating from a full time position to a part-time job after formal retirement is granted. For example, a salesperson may retire from the company, but return in a few weeks on a part time basis, providing some type of support to the sales team a few hours each week, such as helping prepare presentations or assembling implementation packets for newly signed clients. This process allows the retiree to still be involved in something he or she knows well, but without the stress and responsibility that goes with a full-time position.
Phased retirement may also focus on how the retiree receives benefits from a pension or other type of retirement fund. Instead of a series of monthly disbursements of the same amount, the recipient may opt to receive smaller amounts during the first year or so, then incrementally phase in larger payments. This may be necessary as a means of managing the tax load to best advantage, or ensuring there are more funds available for later years, when other resources have been depleted.