Phased Retirement: Will It Become the Norm?

Retirement is a strong word and evokes strong emotions. In the young, it brings joy, visions of freedom and pursuing lifetime dreams; but, as that time of life approaches retirement may conjure up anxiety, worry, fear. Why? Money. Will we have enough to maintain a comfortable lifestyle, maintain our health, afford medical expenses, pay for the increasing costs of ordinary needs such as food, gasoline, property taxes, not outlive our retirement nest egg, are some reasons.

So, we look at ways to have the funds to live, and often this includes the decision of when and how to retire. A new retirement path has been emerging for some time: Phased Retirement.

The article below is a great overview of phased retirement - the benefits and obstacles. The studies are several years old, but are still relevant as the issues are still with us, and still need solving. I hope this article will provide some food for thought as to how we will finance our "golden years", and motivate some of us to take steps in the right direction.

Have a great day

Gloria

Older Americans: Retired or Still on the Job?

By: Jacque L. MillerFamily Resource Management Specialist

After declining in the 1970's and 1980's the number of older workers has been increasing steadily.

Fast Facts

Among men aged 55 - 64 who received income from a private pension or retirement savings plan during 1999, about 37 percent were employed either full or part time in March 2000 - an increase of more than four percentage points over the comparable rate in 1994 (Purcell, 2000).

In the past year, as the economy has weakened and unemployment has risen, the labor force participation rate for older workers (age 55 - 64) has jumped 2 percentage points - an increase unprecedented in post-war economic history (Eschtruth & Gemus, 2002).

Ninety five percent of people ages 55 - 64 who are still working plan to get another job after they retire (Kadlec, 2002).

Factor Influencing Older Worker to Stay on the Job

Besides plunging stock portfolios, other factors have contributed to older workers postponement of retirement and convinced other early retirees to rejoin the labor force.

Public policies and private institution changes may be encouraging later retirements. They include:

Elimination of age discrimination rules.

Social security is no longer growing more generous.

Rise in the Social Security normal retirement age.

No incentive to retire at a particular age.

Coverage under company pension plans has shifted from defined benefit
plans to greater usage of defined contribution plans, such as the 401 (k) in
which balances have been shrinking despite record amounts of new investments.

However, for many, money is the object. The decision to keep working is strongly based on financial need (68%) or the desire to build up income (64%) (The Conference Board, 2002).

High Expectations for Retirement

Americans continue to have high expectations for their retirement lifestyle. They are interested in pursuing their unfulfilled dreams, leisure interests, and/or contributing to society through volunteer activities.

The 2003 Retirement Confidence Survey shows:

Only 21% of workers feel very confident about having enough money to live
comfortable in retirement and 45% feel somewhat confident.

31% of worker who plan to retire think they can live comfortably in
retirement on less than 60% of their current income. Many financial experts say
that retirees will need at least 70-80% of their pre-retirement income to live
comfortably in retirement.

61% of workers have not calculated how much money they will need to
save by the time they retire.

Wide spread lack of knowledge and apathy about money management issues are evident in current saving and consumer debt statistics show (Kadlec, 2002):

Nearly half of all households did not save a penny last year

Revolving consumer debt over the past five years has soared to
30%

The median savings for boomers at age 55 are just at $25,000 -
not accounting for debt.

Without more personal savings and larger contributions to
retirement during working years, neither early retirement nor the ability to
maintain a current lifestyle in retirement will be realizable goals for many
Americans.

Phased Retirement an Option

In the traditional view of retirement, a worker moves from fulltime employment to complete withdrawal from the labor force in one step. Given that the labor force growth is slowing and Americans are enjoying longer and healthier lives, efforts to encourage older workers to stay in the labor force could have important benefits for individuals and the nation's economy. (Burtless & Quinn, 2002)

If the average age of retirement declines it will impact the growing national burden of paying for Social Security and Medicare (Williamson & McNamara, 2001). Additional ways need to be found to keep more people in the labor force beyond their mid sixties.

Older workers planning to retire within five years are receptive to remaining with their current employers through part-time or flexible work arrangements (The Conference Board, 2002).

Phased retirement may be an option that could bring balance to the labor market and benefit both workers and employers. Workers gain some of the benefits of early retirement and employers retain the services of valued workers.

A study of 586 firms conducted by the benefits consulting firm of Watson Wyatt Worldwide found that only 16% offered some from of phased retirement to their employees. According to the data collected from the firms offering some form of phased retirement: (Purcell, 2000):

75% said they rehire retire employees on a part time or temporary
basis

42% said they contracted with retired employees after they retire

60% said they allow retirement eligible employees to work fewer days
per week or fewer hours per day

32 % said they allow employees not ready for fully retire to transfer
to another job within the firm

23% said they provide extended leaves of absence; and

19% said they provide job sharing.

Despite an aging work force caused by the graying of the baby boomers, most companies are not actively encouraging their older, more seasoned workers to remain with them (The Conference Board, 2002). There are legitimate barriers and questions as to whether the combination of partial work and partial retirement will work (Wiatrowski, 2001),

Current Federal tax law prohibits in-service distributions form (sic) an employer's retirement plan. A person cannot continue to work and also receive benefits from a retirement plan.

Most defined benefit plans include a formula that bases benefits on earning in the final years to retirement. If an individual entered a phased retirement program, with reduced hours (and commensurate reduced salary), would the lower salary affect the calculation of future retirement benefits?

Do years of service continue to accrue if an employee works part time and
receives a partial pension?

How do years of part-time service affect the calculation of total years
on the job?

Are benefits recalculated after the employee cease work all
together?

The Dialogue Continues

This issue is clearly on the minds of policy makers and there is an ongoing effort to come up with solutions to this multi-faceted problem. Phased retirement is just one of the topics of discussion in the debate over retirement. A continued dialogue is needed among employers and others to proactively address the challenges of a maturing workforce. Future successful retirement programs will need to:

enhance the employment relationship,

promote the development of more effective management tools,

be flexible, understanding the motivators for continuing to work are
diverse, and
maximize the contribution of the older person both within and
outside the workplace.

Web sites that provide additional information regarding research and policy surrounding this issue are:

The Center for Retirement Research at Boston Collegewww.bc.edu/centers/crr

This site provides publications, research, data and links. Internet searches can locate information about retirement decisions quickly with the search feature. "Issues in brief" provides concise, timely analyses of important retirement policy issues by e-mail for those who request it. "Just the Facts" series offers brief explanations of new research findings, interesting data and current policy issues.

Michigan Retirement Research Centerhttp://www.mrrc.isr.umich.edu/

The Michigan Retirement Research Center (MRRC) serves as a national research and education resource, benefiting the public through information directly related to Social Security, pension, and retirement-related policies.

National Center for Policy Analysis [NCPA]http://www.ncpa.org/

This Web site contains news, discussion of issues, and more. The "My Social Security" pages provide a comprehensive look at social security issues. This site has publications, Expert Advice, (pro and con), Quick facts, and links for a comprehensive look at topics related to Social Security.

National Older Worker Career Center [NOWCC]http://www.nowcc.org/

National Older Worker Career Center provides professional, technical, and administrative work opportunities to older workers through the EPA's Senior Environmental Employment (SEE) Program. The "Issues and Perspectives" section includes a helpful online resource library with articles about changing demographics, phased retirement, legal issues, opportunities for older workers and more.

Conclusion

Will older American retire early or still be on the job? To make the best decisions, workers must be aware of their options in order to take responsibility for the choices they make throughout their lives. If Americans choose to spend more years in retirement and enjoy their current living standard, they must plan continually and up their savings. Planning for retirement is more important than ever.

Americans will also need to address the current challenges of low saving rates, high credit indebtness, inadequate financial preparations for retirement, limited financial assets, and lack of understanding of increased retirement needs due to living longer and upward spiraling health care costs.

Another way to overcome some of the financial burden for both individuals and the national economy is phased retirement. Besides freeing up or conserving resources, older individuals themselves may derive social, economic and psychological benefits from continued labor force activity.

Policy makers, employers and other leaders will need to address the challenges of a baby boom generation nearing retirement.

_____________________________________________
References

Burtless, G. & Quinn, J. (December 2002). Is working longer the answer for an aging workforce? Issues Brief No. 11. Washington, DC: Center for Retirement Research at Boston College.

Employee Benefit Research Institute, American Savings Education Council and Mathew Greenwald & Associates. (2003, April 11). Retirement anxieties grow, but overall confidence changed little despite sagging stock market. Retrieved April 15, 2003 from: www.ebri.org/prrel/pr628.pdf

Eschtruth, A. & Gemus, J. (September 2002). Are older workers responding to the bear market? Just the Facts on Retirement Issues. Number 5. Washington, DC: Center for Retirement Research at Boston College.

Kadlec, D. (2002). Everyone back in the labor pool. Time, July, 22 - 31.

Purcell, P. (2000). Older workers: employment and retirement trends. Monthly Labor Review, October, 19-20.

The Conference Board. ( 2002, December 2). Voices of experience: mature workers in the future workforce. (Research Report #1319-02-RR). Retrieved on April 3, 2003 from: www.conferenceboard.org/utilities/pressPrinterFriendly.cfm?press_ID=20
Wiatrowski, W. (2001). Changing retirement age: ups and downs. Monthly Labor Review, April, 1-2.

Williamson, J. & McNamara, T. (2001). Why some workers remain in the labor force beyond the typical age of retirement. (Research Report CRP WP 2001-09). Chestnut Hills, MA.: Center for Retirement Research at Boston College.
.
.
.