Phase Into Retirement With A Phased Retirement Plan – Forbes

No one likes sudden change. We like to ease into things – transition with time. Yet we talk about retirement as an event. One day you’re a working stiff; the next day, you’re a retiree. Wouldn’t it be nice if you could phase into retirement? With planning, you can.

Phase into retirement on your terms


So-called “phased retirement” is a hot topic for retirement planners. The basic idea is to create a path towards retirement where you don’t just go from working 50 hours a week to not working at all. It may involve slowing down at your current job (including actually taking vacations), working fewer hours, creating your own part-time job, or transitioning to an encore career. There are big picture reasons phased retirements are more prevalent than in the past. First, people are living longer, so there are both financial and personal reasons they may want to and/or need to phase into retirement. Further, there’s more opportunity to do so because many jobs no longer require physical activity; indeed, we learned during the pandemic that in many cases, one’s job can be performed from home. Finally, with the brain drain of departing baby boomers and the phenomenon of the Great Resignation, employers are more willing to accommodate phased employee exits.

In the past, retirement was thought of as leaving when you could no longer physically work, enjoying a few years in a rocking chair … and then dying. Last century, the idea of retirement shifted to working until you’re 65, then completely stopping from work and living off your pension and Social Security until you die. Recently the whole paradigm has shifted. Some individuals want to be FIREs (“financially independent, retire early”), where they save and invest carefully now so they can enjoy a long retirement while young enough to appreciate it. Others tilt the other way, finding their careers to be so satisfying they plan to work their whole lives. Realistically, both these retirement goals may end up utilizing some kind of phased retirement. The FIREs may need to combat boredom or pad their wallets with part-time work after their early retirements, and the long-haulers may eventually need to slow down even if they don’t want to stop altogether.     

There are many reasons phased retirement should factor into a future retiree’s plans. The reasons can be both financial and emotional, and they bare consideration, even if as only a backup retirement strategy.    


Two major financial motivators in retirement are driven by government benefits: Medicare and Social Security. And both have age considerations. Medicare doesn’t happen until age 65. Social Security shouldn’t happen until at least age 67 (the age when most future retirees reach their “full retirement age”). The question, then, is what happens if you want to retire earlier than these ages? You may consider phasing out of work rather than just quitting. This way you can still afford to live a comfortable lifestyle in the period before your government benefits kick in. Phased working may help provide employer-provided health insurance until you qualify for Medicare, and it can offer a supplemental income bridge until you can file for your full Social Security benefits.  

Phased retirement can enhance other aspects of your retirement income strategy as well. For example, if you retire from your employer, and then create your own part-time consulting or service firm, you can gain significant tax benefits. Your earnings will be taxed at a lower rate because of the 20 percent deduction for “qualified business income.” And you will be able to deduct ordinary and necessary business expenses that would never have been deductible while you were a W-2 employee. As a self-employed worker, you can also beef up your retirement war chest for when you do ultimately stop working. Using the earnings from your business, with a Simplified Employee Pension (SEP) or Solo 401(k) you can contribute a substantial amount towards your retirement account on a tax deductible basis.  


Let’s make this personal. Why should you consider a phased approach to retiring? One reason is because you’ve not retired before, and a phased approach lets you ease into this new chapter in your life. It gives you a chance to try things out before totally committing. We all have different visions of what retirement will be like. Some think they will golf every day while others fear their purpose in life will disappear overnight. Neither of these attitudes necessarily reflect reality. With phasing into retirement, you can test drive how retirement will work for you. Specifically, by leaving your current job, and moving to a job that involves less hours, less stress, or fewer commitments, you can experiment with some of the activities associated with traditional retirement. You can see if you really want to golf that much, you can take on some of the volunteer work you’ve wanted to do for years, and you can see how you handle having more time on your hands.

Another motivator is that if you’re married, phased retirement gives you a chance to create a new environment for living with your spouse. An old retirement adage states “for better or worse, for richer or poorer … but not for lunch!” Phased retirement is a handy way to help a couple ease into a new living arrangement.


Phased retirement is a concept, not a particular legal or employment status. Your employer may be willing to let you work reduced hours, cut out stressful job responsibilities, or time-share with another employee. Or you might retire from your current job and start a part-time business that relates to your interests and expertise. An “encore” career might be best if your current job is physically taxing. For example, a police official’s encore career might be teaching police science at a community college.

Attention needs to be paid to the details of the transition. Cutting back on hours could be ideal unless it disqualifies you for your company’s health insurance. Working for yourself offers independence, but now you must remember to file estimated taxes. And working from home may necessitate equipping yourself with new equipment and expanded Wi-Fi. Phasing your employment typically means more than just cutting back at work – you must design how you’ll phase into retirement.   

As you do your planning, ask yourself if retirement really means stepping off a cliff … or walking down a hill. For both financial and personal reasons, consider the idea of a transition or “phased” way to retire. It may make the descent a lot smoother.