Retirement is a jarring transition of your life. You’ve spent the last several decades waking up and going to work every day, but now you’re experiencing a jarring change. You wake up, and you don’t have to drag yourself to work.
While it sounds like a wonderful change, there are thousands and thousands of retirees that say they experience a feeling of emptiness or they feel lost without the responsibility of having to be at work every day. Maybe you think that you won’t like going from working every day to having nowhere to be. Luckily, the idea of phased retirement is becoming more and more popular every year.
What Is Phased Retirement?
Phased retirement is a tool that some larger and medium sized companies are using to help their employees that are getting close to retirement. With phased retirement, you go from a full-time employee to only work part-time. This allows you to start drawing retirement, but still working on a part-time basis. Every company is different in how they will manage their phased retirement program, the hours and benefits are going to varying depending on which company that you work for.
On the surface, phased retirement seems like an excellent idea for soon-to-be retirees, but there are several advantages and disadvantages that you should be aware of when you’re planning your retirement stage of life.
Should I Use Phased Retirement?
There are a lot of factors that you should consider when you’re deciding if you should participate in a phased retirement program. One of the biggest problems that you may run into when you’re using phased retirement is complications with your pension. Your pension benefits are calculated using the total number of years that you worked and the average salary. If you participate in phased retirement, the number of years that you worked are going to go up, but you’ll only be earning around half your salary, which could reduce the amount that you get through your pension. One option to avoid this is quit your full-time job with the company, and then be hired back as a contractor, this way you can work part-time, without impacting your pension benefits.
Another aspect to consider is your health care. If you only work part-time, you may not be eligible for a company-sponsored health care program, and depending on your health care, it may or may not have a huge impact on you. If you’re going to enroll in Medicare, then this may not matter to you, but if you aren’t eligible for Medicare or you want a company plan to help supplement your Medicare, you may run into problems as a part-time employee.
Much like the problems with your pension, you may also hurt your Social Security benefits if you decide to retire slowly. Your Social Security benefits are based on your earnings, and if you have several years of significantly lower income, then it could reduce how much that you’re able to earn through Social Security when you start receiving those benefits.
There are several advantages to phased retirement if all of those pitfalls don’t scare you off. The obvious advantage is the emotional and psychological benefits. A large majority of recent retirees feel lonely because they don’t have the interaction with their coworkers anymore, which can leave them with significantly less social interaction and a feeling of being all alone. With phased retirement, you’ll have time to meet other retirees and people that you can associate without outside of work but still have those working relationships. It can be mentally and emotionally jarring going from one extreme to another. Easing into this new stage of life is going to be much easier on your health and well-being.
An obvious benefit is the additional financial support that you’ll have. If you continue to work part-time, you’ll still have a paycheck coming in every month, which means that you can stall on drawing Social Security benefits, which will give you the additional delayed enrollment benefits. It will also help you continue to build up your retirement nest egg as large as possible before you start dipping into those accounts.
There are also some physical health benefits that most retirees don’t consider when shifting into retirement. Several studies have shown that retirees that don’t work are in worse health than people who work part-time, either through phased retirement or a traditional part-time job with a different company.
When you’re planning your retirement, it can be a confusing process trying to decide which route is going to be best for you. Do you want to be a full-time retiree, or continue to use part of your time to work? No right or wrong answer is going to work for everyone. Each person is different, and you’ll have to make your decision based on your needs and desires.
If you have any questions about phased retirement and the benefits of these plans, please contact one of our agents today, and we would be happy to answer those questions.
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