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Phasing Into Retirement: An Approach to Improve Your Return on Life (“ROL”) Thumbnail

Phasing Into Retirement: An Approach to Improve Your Return on Life (“ROL”)

Going from 65 to 0 can cause a lot of friction. Going from working 40-60 hours a week to zero can be tough on those that retire.  Rather than sticking with the traditional approach of retirement – working a full week one week to not working at all come Monday – you might want to consider a phased approach to retirement.  This may help you both financially and emotionally as you prepare for retirement. 

Fortunately, there are more options available to try this approach. According to a 2019 survey by the Society for Human Resource Management, the number of organizations offering informal phased retirement to some employees has risen by 15%.  And while more broadly available formal programs are only offered by 6% of companies, many retirees are so focused on building their nest eggs that they never bother to ask their employers about what phased retirement options are available to them.  Other seniors who are financially prepared to retire but unready emotionally stick to their familiar 40-hour work week rather than consider part-time work that could give them time to enjoy other aspects of life. 

Here are six reasons why adopting the phased-in approach to retirement could help ease your transition into retirement.

1.  Increase your nest egg or maintain your current nest egg for a longer period of time.

You may still have a passion for continuing to do some of the work you are doing, or you may have unfinished projects at work that you would like to see come to its final stage.  While continuing to work part-time may have positive psychological benefits, you may also reap the benefits of a continued paycheck, albeit at a fraction of what your full paycheck generated.  Moreover, you may be receiving critical employer benefits by continuing to work, depending on your employer’s policies. 

Reaping these extra monetary benefits may either provide more confidence in maintaining your standard of living in retirement or may allow you to budget to fill up more of your bucket list without worry.  Will working part-time for 1-3 years provide more cruises than you would otherwise take?   If that would give you satisfaction and you otherwise would enjoy working part-time, then perhaps you should consider this option.

2.  Prepare for your retirement budget. 

Whether you scale back your existing hours or take a part-time job, your monthly paycheck will probably look smaller than you're used to.  Giving yourself this pay cut is a good opportunity to review your household budget and think about how you want to spend your money in retirement.  While you ideally reviewed your budget in detail before this stage in your retirement planning, this could provide another opportunity to more closely review your budget. 

Look for ways to economize, such as cancelling magazine subscriptions you never read, streaming services you never watch, or club memberships you never use.  You might also identify debts that you want to work on paying down or eliminating before you retire, such as credit cards, vehicles, or your mortgage. 

Once you've covered the basics, think about what you want your entertainment budget to look like.  How much money do you want to allocate for travel?  Do you want to invest more in your hobbies, or hire a coach or teacher to help you develop a skill? 

One line item that deserves special attention is health insurance.  If downshifting affects your employer-subsidized health care and you're not yet 65, you'll have to buy insurance off your state's marketplace until you qualify for Medicare.

3.  Adapt your money mindset. 

A financial advisor can help you coordinate your assets into a long-term retirement spending plan.  During this downshifting phase, start getting comfortable with the idea that more money might be going out every month than is coming in.  If building your nest egg was the end goal of a fulfilling life, then you'd never stop working.  And if maintaining that nest egg is all you think about in retirement, then you'll never really enjoy your golden years. 

Still, changing from a saving mindset to a spending mindset can be tough.  As you downshift, start small.  Treat yourself and your loved ones to something special.  Toss out that old mattress that's breaking your back.  Upgrade your home theater.  Give yourself permission to have a little fun now so that you'll be ready to enjoy everything retirement has to offer once you stop working for good.

4.  Cultivate more friendships. 

Once you stop working, it may be more difficult to find or cultivate friendships.  As you may know, we consistently talk about the value of staying connected in retirement.  What we often fail to realize is that we often lose many of our connections once we stop working. 

Staying involved with work – even part time – may allow you to plan more intentionally about what fellow employees you would like to continue to stay in touch with. There may also be connections within industry groups, vendors, and even customers that you may want to cultivate deeper friendships while working that can last well into retirement.

5.  Experiment with your schedule and develop hobbies. 

That first Monday morning without work is a shock to many new retirees.  Downshifting at least keeps some of the white space on your calendar filled in.  You can use the skeleton that those reduced hours provide to build out a full retirement schedule that will keep you happy. 

Finding how to fill that whitespace on the calendar while you are still working part time may help you gradually find hobbies that you enjoy, uncover learning opportunities you want to explore, or confirm renewal opportunities you want to pursue.   Try some new things on your off days, like an online class or a sport you've always been interested in.  Explore volunteer positions. Drop in on your granddaughter’s soccer games.  Eat at that new lunch hot spot.  Meet up with friends and talk about how they're managing their own retirements.  

6.  Decide if withdrawing from the workplace is really want you want.

There are many activities in retirement that can provide fulfillment, including leisure activities, developing more meaningful relationships with friends and family, renewal activities, and volunteer work.  However, you may ultimately decide that withdrawing from the workplace – from a paid position that provides tangible and intangible benefits – is not what you want at this point in your life. 

Taking a phased in approach to retirement may give you a sense of what retirement looks like while giving you an easier “in” to stay or re-engage more fully in the workplace in whatever form that may be for you. 

And if you are contemplating retirement and wonder how the financial and non-financial aspects could play out for you in a phased-in approach to retirement, schedule some time to talk to us.  Let's discuss what you're liking, what you're finding challenging, and how your financial plan can help to smooth the rest of your path into a successful retirement