The gradual goodbye
A growing number of workers want to retire one step at a time. So can you - if you avoid the hidden traps.
Seven months before Ken Klein retired last year as a project manager, he went to his boss with a modest proposal: He wanted to ease into retirement by working a four-day week. His employer agreed, allowing him to compress 40 hours into four 10-hour days, with the option of doing some work at home.
"That was very valuable to me," says Mr. Klein, who spent 28 years with The Hartford Financial Services Group in Hartford, Conn. "It gave me a chance to begin seeing what extra time at home would be like. It also got my wife used to having me around, and knowing that I was coming into her territory."
Count Klein among a growing number of people who are eager to keep one foot planted firmly in the workplace, even as they enjoy more leisure time and cultivate new activities. Phased retirement, as the arrangement is called, lets older employees work fewer hours with more flexibility and less responsibility.
Although still in its fledgling stage, the trend could become the wave of the future, according to labor specialists. "The early-retirement trend is over," says Rebecca Miller, managing director of RSM McGladrey in Bloomington, Minn. "For a variety of reasons, folks want to continue to work."
For some employees, money is the motivator. With investments battered by stock-market losses, higher healthcare costs, and greater longevity, they see a need for continued paychecks. The Congressional Budget Office estimates that each year of deferred retirement reduces a worker's need for retirement savings by 5 percent.
Other older workers remain in the labor force because they enjoy their jobs. "They want to continue as contributing members of society," says Joyce Gioia, president of the Herman Group in Greensboro, N.C.
In a recent Gallup poll of investors, 57 percent expect to retire after age 62, up from 36 percent in 1998. And nearly two-thirds of full-time workers over 50 hope to phase into retirement at some point, reducing their hours or gaining flexibility, according to Watson Wyatt Worldwide, a consulting firm in Washington.
For employers, phased retirement helps in slowing turnover and retaining experienced employees - key factors as large numbers of baby boomers approach retirement age.
"We're moving into a period where labor shortages are going to beset companies," says John Challenger, chief executive officer of Challenger, Gray & Christmas, an outplacement firm in Chicago.
Half of today's working nurses will reach retirement age by 2015, he notes. The average age of construction workers is approaching the mid-50s. And by 2006, 31 percent of workers in the federal government - nearly half a million - will be eligible to retire.
Phased retirement traces its roots to the academic world. Tenured professors approaching a conventional retirement age often cut back their schedule by teaching fewer classes.
At the 16 campuses of the University of North Carolina system, up to 40 percent of retiring faculty members choose phased retirement. They must be at least 50 and have spent a minimum of five years at their current university. In exchange for giving up a tenured position, they receive a commitment to work half time for half pay for three years.
"This is a very attractive policy," says Steven Allen, associate dean at North Carolina State University in Raleigh. "It's helpful in economic terms, and it allows people to make the adjustment to retirement in a smoother fashion."
Nationally, 14 percent of the workforce is 55 or older. At The Hartford, more than a quarter of employees are 50 or over. "This is a very critical talent pool for us," says Ann de Raismes, an executive vice president, noting that the company has offered a formal phased retirement program since 1997. About 150 workers currently use the plan.
"We equate gray hair with talent and wisdom," says Ms. de Raismes. "It's really taking full advantage of the knowledge and experience of these workers."
That attitude does not prevail everywhere. "People frequently look at seniors as being somehow less valuable," says Ms. Miller. "They don't recognize that experience has value."
Some younger workers cast a skeptical eye on phased retirement out of concern that older employees will block their progress. Employers raise other questions, says Mr. Challenger, such as: "Can you be as productive when you're working part time? And what kind of pay structure should exist for them?"
One of the biggest hurdles for employees involves defined benefit plans. These calculate retirement benefits based on the pay earned during the last few years of work. Those who cut their hours and salaries as retirement approaches may reduce their future pension.
To avoid that problem, some companies, including The Hartford, calculate pension benefits on the basis of the highest five years of salary during the past 10 years. "That provides a great deal of flexibility," de Raismes says.
Employees can also jeopardize healthcare coverage when they cut their hours. By logging 80 hours of work a month, Klein keeps his health insurance intact.
Most programs are informal, allowing employers to offer them only to workers they want to keep. Phased retirement can involve moving workers from full-time to part-time schedules, rehiring retirees on a part-time basis, or keeping them as consultants.
Before Ray Krause retired as national director of accounting for McGladrey & Pullen in July, he knew he wanted to continue working part time somewhere. "I thought I would stack groceries at a grocery store or be a greeter at Wal-Mart," says Mr. Krause, of Bloomington, Minn.
Those modest aspirations changed when the company asked if he would consider helping with special projects on a consulting basis. "I agreed," says Krause, who had spent 36 years with the firm. "It pays better."
That continuity is bringing Krause other advantages as well. In June, his wife died. As he adjusts to life as a widower, familiar faces at work, together with the satisfaction of productive activity, provide a measure of comfort.
"I've been told I can work as long under this arrangement as I want to, although each of us will have to reassess this from time to time to make sure that it makes sense for both parties," Krause says.
Yet in many businesses, a sizable gap exists between what workers want and what employers offer in terms of phased retirement opportunities.
"Some companies have absolutely no part-time culture," says Valerie Paganelli, a senior retirement consultant at Watson Wyatt in Seattle. "Employees are looking for part-time work, flexible hours, and less responsibility. That can culturally be a hurdle for some organizations."
When Lee Shippy turned 62 nearly a decade ago, he faced mandatory retirement as a partner in RSM McGladrey in Crystal Lake, Ill. Unwilling to leave permanently, he arranged a phased retirement by reducing his salary and his hours.
Although he still puts in nearly 40 hours a week as a tax specialist, he feels far less pressure than he did as a partner. When the company finds a qualified replacement for him, he plans to reduce his hours further to pursue interests that include tennis, the arts, and travel.
"I doubt that I'm going to get out of the business," Mr. Shippy says. "I've got a skill that is in somewhat short supply - estate planning - and I feel reluctant to step out and say I'm going to give up that skill. Right now it works well for all of us."
Finding ways for such programs to work well may be the order of the day for many businesses as the workforce changes. "It's going to be very competitive out there," Challenger says. "More flexibility, more responsiveness to the kind of balance people want is fundamental to companies."
For Klein, phased retirement proved so successful that now, as a retiree, he is back at The Hartford, spending 20 hours a week on a four-month project. In his free time, he has taken sailing lessons. He also plans to volunteer for Habitat for Humanity.
"You're not jumping into the cold ocean," he says of his move to ease into retirement. "You're putting in your toe, then your foot, then your leg, slowly."