Phased Retirement Programs: Will They Make a Comeback?

Retirement patterns are changing in the U.S., as well as in many other countries. According to Towers Watson's 2013/2014 Global Benefit Attitudes Survey, an increasing numbers of employees are delaying retirement. According to the Intuit 2020 report on business and employment trends, in 2020, one in six Americans will be older than 65, while the Transamerica Center for Retirement Studies says that 65% of Baby Boomers plan to work some hours after age 65, or don't plan to ever retire.

As expected retirement ages are rising, the definition of retirement is no longer viewed as a single event that occurs after an individual leaves their career job and goes off into the sunset. Rather, it is often now seen as more of a gradual transition from full-time employment to full-time retirement. This approach to retirement has evolved over the years as workforce demographics, technology, and approaches to workplace flexibility have created an opportunity to redefine the retirement process to meet both employer and employee needs.

For years we talked about a "brain drain," and in response to the possibility, many companies began to explore programs aimed at capturing that intellectual capital before it left the building. Many employees, also, began to express the desire to continue working past their expected retirement date. However, many of today's workers desire that the road to full retirement be a gradual process that offers a variety of options, from working reduced hours at one's current career job to working part-time at a new venture, with a host of options in-between.

Although the mass exodus of baby boomers from the workforce failed to materialize, organizations are still experiencing a shift in how people retire and must pay close attention to how they respond. Phased retirement is one solution some companies have explored. What exactly is phased retirement, and how is it used by organizations to manage an aging workforce?

The Sloan Center on Aging and Work at Boston College defines phased retirement as "a transition period during which a worker reduces the numbers of hours worked until retirement." Phased or flexible retirement programs are meant to create a bridge between "working full-time and retiring full-time."

Surveys vary when determining how many employers offer phased retirement programs. According to a WorldatWork survey, 17% of respondents reported offering phased retirement benefits, while the 2014 National Study of Employers reported that 54% of organizations offer all or at least some employees to "phase into retirement by working reduced hours over a period of time prior to full retirement," and 18% allow all or most employees to do so. MetLife found that 17% of surveyed employers offer phased retirement. Most phased retirement programs that do exist are informal.

A range of employers can benefit from phased retirement programs. This includes companies concerned about losing top talent or specialized knowledge as older workers exit the workforce, along with organizations concerned about not having enough employees to meet their business needs.

From an employee's perspective, people are living longer and they want, and, in many cases, need to work. Many desire to scale back while continuing to contribute and engage with their current employer.

They desire continued income and continued learning, along with the ability to pursue other passions, and adjust to eventual full retirement status. Furthermore, the decision to extend one's working life is driven by financial necessity for many individuals, especially as employees struggle to recover and gain their financial footing from the Great Recession. In fact, the financial crisis led to the increase in the offering of many financial wellness programs to assist with this.

Over the years both employers and employees have had to address legal and regulatory restrictions inherent in their qualified retirement plans, which often have penalized individuals from collecting a portion of their benefits when wanting to work beyond the "normal retirement age." With the Pension Protection Act of 2006, many modifications were made that enabled some of these barriers to be overcome.

As employers consider the future of their organization, managing talent is a critical component to success. Why aren't more employers offering phased retirement programs?

Do you currently offer a phased retirement program, and, if not, why not?

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