Phased Retirement Arrangements May Benefit Some Employers

Historically, retirement has been a bit like jumping off a cliff. Employees pick a date, maybe enjoy a going-away party and then off they go into the great golden years beyond.

But it doesn’t have to be that way. Under the concept of phased retirement, prospective retirees transition out of the workforce gradually by working reduced schedules or other types of alternate work arrangements. Think of it as carefully rappelling down the cliff rather than jumping off.

At least one recent survey indicates that many of today’s older workers may hold the concept in high regard. In August, global professional advisory firm Willis Towers Watson released its 2024 Global Benefits Attitudes Survey. It found that, of 10,000 U.S. employees working for midsize to large private employers, 15% of those age 50 or older are already engaging in phased retirement while another 19% wish to do so.

Various arrangements, varied benefits

Employers can set up various phased retirement arrangements. Prospective retirees may, for example:

• Shift to four-day work weeks,
• Move into job-sharing agreements,
• Convert to part-time status,
• Work remotely all or most of the time, or
• Retire, but stay on as contract-based consultants.

Some valid reasons exist for employers to spend time and resources establishing phased retirement arrangements. Many employees head into their golden years possessing vast amounts of “intellectual capital” — that is, knowledge of their industries, organizations and jobs that no one else has. A transitional employment arrangement gives you more time to preserve this know-how, perhaps in part by asking prospective retirees to mentor younger employees.

Phased retirement can also help preserve external relationships. If a long-time employee fully retires, key customers may take their business elsewhere. Your organization might also struggle to maintain strong relationships with vendors, regulatory officials or other important contacts. “Phased retirees” can serve as bridges between themselves and their successors to retain high-value accounts or help manage other critical matters.

Plus, phased retirement tends to ease hiring pressure and lower training costs. Finding an ideal candidate, winning over that person with a job offer, and teaching the new employee the “ins and outs” of the position could take months or even years — and many, many dollars. You can create more time to hire by keeping the soon-to-be retiree on staff and involved in the selection and training processes. At the same time, the older employee may be working fewer hours and, therefore, drawing less in compensation.

Risk management 

Naturally, there are risks to consider. Employees nearing retirement who have “checked out” or are disgruntled may not pass along their knowledge completely or accurately.

Some employers might be concerned about older workers driving up the costs of their health insurance plans because of increased claims. Bear in mind, however, that advances in medical care and greater awareness of wellness have resulted in many people remaining healthy later in life. In other words, a spike in benefits costs isn’t a certainty. Consult an employment attorney regarding how selective you can be when offering phased retirement.

Brain-drain stopper

If your organization is concerned about “brain drain” as employees retire, working in good faith with older employees to set up phased retirement arrangements could help mitigate the problem. It may not suit every situation, and some workers might still want to dive into retirement in one fell swoop. But as is so often the case with employment policies these days, flexibility is key.

© 2024