Phased retirement, or gradually reducing your hours rather than retiring all at once, offers many benefits, especially when it comes to securing your financial future.
The most significant advantage is that it lets you keep contributing to your retirement savings while transitioning out of the workforce.
By easing into retirement, you can continue contributing to your IRA or 401(k), even if you’re working fewer hours.
For example, there are no age limits for contributing to an IRA, as long as you have earned income. In 2022, if you’re 50 or older, you can contribute up to $7,000 to your IRA, or 100% of your earned income, whichever is less.
You may also be able to keep contributing to your employer’s 401(k) plan, depending on your arrangement.
Previously, employers could exclude employees working fewer than 1,000 hours a year from retirement plans. But with the SECURE Act of 2019, part-time employees who work at least 500 hours a year for three consecutive years are now eligible to participate in employer retirement plans.
Negotiate for the Best Deal
If you’re considering phased retirement, it’s worth discussing it with your employer to see if it’s possible to continue contributing to your retirement accounts. Companies, especially those eager to retain experienced workers, are often willing to be flexible.
Even if you don’t plan to stay long-term, aim to secure the best deal possible. If your company doesn’t have an official phased retirement plan, consider reaching out to colleagues who have negotiated a similar arrangement to learn about their experiences.
If a formal program exists, it can be helpful to ask your coworkers about the process, including any potential hurdles or unexpected challenges.
The Double Win
Phased retirement can also help you avoid the sudden psychological shock that comes with fully retiring. For many, transitioning out of a successful career can feel jarring, especially if you’re unsure of how to spend your time in retirement.
By working part-time or taking on a consulting role in your current company, or even with a friend’s business, you can ease into retirement while enjoying a steady income and staying engaged with your professional life.
In short, a phased retirement offers financial and emotional benefits, making it an attractive option for those looking to secure a richer, more fulfilling retirement.
