Your Employee Benefits Systems and Phased Retirement
Phased retirement is getting a boost from the sluggish economy in America's employee benefits systems. Many people are discovering they can't afford to retire fully. Yet, when one ponders phased retirement, there are some other financial factors to consider.
A recent article in the Pantagraph draws from the survey genre of employee benefits systems literature. The article highlights some issues to consider. Realize, for example, that when you reduce your work hours and salary, that reduction could have a direct impact on you.
Look at your own situation to determine how that reduction would affect your:
- Life insurance, which is often tied to a multiple of your salary
- Long-term disability insurance.
- Pension and other retirement benefits, which are critical factors to look at when considering whether to retire gradually.
As part of your analysis of your employee benefits systems, consider how phased retirement could undesirably impact your pension. Your earnings in phased retirement could also reduce your Social Security benefits if you start collecting Social Security before you reach your full retirement age, for the government penalizes Social Security recipients who continue to earn income before their full retirement age.
In addition, if you're thinking of reducing your work hours, be sure to get answers to two additional questions: 1. Will you still be eligible for other offerings with your employee benefits systems, especially your employer's health insurance? 2. Will you still be able to participate in your employer's 401k?
An AARP Employee Benefits Survey of Phased Retirement
According to a 2005 AARP employee benefits survey of individuals over the age of 50, respondents expressed these reactions to the idea of phased retirement:
Almost 90% of the respondents thought it is important to be able to continue to accrue pension benefits while participating in phased retirement.
About two-thirds indicated that a phased retirement program would be less attractive to them if it would lower their final pension benefits.
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