Easing out of the workforce through phased retirement

For many retirees, the thought of abruptly stopping work one day to retire is not ideal, leading some to seek out a phased retirement from their current career – allowing the employee to gradually ease out of the workforce, while the employer gets to keep a valued staff member.

According to a recent report by the Gandalf Group for advertising agency Bensimon Byrne, 67% of those 50+ expect their retirement to consist of working in the same line of work, but only part-time. A 2005 AARP survey also found that 38% of working respondents over the age of 50 would be interested in participating in phased retirement¹.

Gradual retirement usually lasts a couple of years and can include anything from cutting back on your work hours, or work days, to working for your company on a contract basis, says Barbara Jaworski, Chief Executive Officer of the Workplace Institute and author of KAA-Boom! How to Engage the 50-Plus Worker and Beat the Workforce Crisis.

Some of the reasons that people choose to retire gradually include having extra income, making a contribution to an organization, continuing to have a routine and interacting with friends, she says. Others may continue to work for personal reasons, depending on whether or not their partner has retired.

From an organization’s point of view, Jaworski says it can be a real benefit to keep individuals, as many are increasingly struggling to hire people with the right kind of skills.

Ultimately, the structure of the typical phased retirement depends on the organization, their pension policies and practices, she says.

This is something that many companies are in the early stages of getting a handle on, says Jaworski, but Human Resources and Development Canada notes that many collective agreements increasingly contain gradual retirement programs².

In early 2008, the federal Income Tax Act was amended to allow employees with defined benefit plans to receive up to 60% of accrued pension benefits while continuing to work part-time or full-time, and continuing to accrue benefits for that work³.

If an organization has a defined benefit plan in place, says Jaworski, then employees will need to have something within their plan that allows them to come back after they’re eligible for retirement, allowing them to collect their pension and be able to earn an income and contribute to a secondary pension.

With defined contribution plans, it is likely less complicated to phase into retirement, she says, as there often aren’t the same kind of pension-related legal barriers with continuing to work on a part-time basis.

With the elimination of mandatory retirement across many provinces⁴ over the last few years⁵, Jaworski says it is important for employers and employees to discuss plans for staying, because it is no longer necessarily the case that they will be leaving at age 65.

One Ontario-based worker who chose to gradually retire from the financial industry over 5 years says he was looking for a way to ease out of his position into retirement due to work stress and health problems. He has spent the last few years working limited hours and introducing his clients to colleagues that will be taking over his accounts. In his newfound spare time, he has taken up volunteer work and several leisure activities.

If you’re considering gradual retirement, include these first steps:

1) Talk to your employer: Jaworski recommends that you speak to your organization about opportunities available for staying longer or working in your position on a part-time basis. “If they’re looking to shorten their day or shorten the number of days they work, then it will take a discussion with the organization to make sure that it fits with what their business needs are,” she says.

2) Evaluate your role: You may want to consider whether you want to change your job description as you gradually retire, says Jaworski. For example, if you are managing other people and don’t necessarily want to continue to do so, you may want to work yourself into a parallel position where you can mentor someone to take that over, she says.

3) Consider what you want to do with your time: One recent retiree who took the gradual retirement route mentions that before you do this, you need to have plans for what you’d like to do with your extra time away from work, to ease the transition. This can include anything from hobbies or exercise, to volunteer work.

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