For many, retirement will be a long process of gradually winding down work hours and responsibilities rather than a firm date.
Retirement for the baby boomer generation and those younger is looking very different from the retirement of our parents. For many, retirement will be a long process of gradually winding down work hours and responsibilities rather than a firm date. There are advantages to this phased in approach and things to watch out for too.
Our working life generally spans decades (sometimes 30-40 years or more). Many times, it is difficult to imagine what life would be like without the routine a regular work week imposes. One of the great advantages of phasing in retirement is that it gradually allows time to explore what other activities, passions, and interests might be fulfilling in this next phase of life. It is one thing to imagine what the possibilities are. It is quite another to actually have some time (and energy) to explore those options.
Some jobs and careers obviously lend themselves to a phased-in approach to retirement better than others. Medical careers can be a good example of that. Employers generally are willing to consider flexible options to retain a valued employee even as part-time or flex-time worker, and the demand for locum tenens services is on the rise.
There are several important considerations to review when considering a phased-in approach to retirement. First, this will almost certainly mean a reduction in income. Will this reduced income still support your monthly budget? If not, do you have cash reserves or investments that you can tap into for additional cash flow? What about social security? If you are already at full retirement age, you may want to consider beginning to take social security to supplement your income.
Another key consideration is insurance. If you are enrolled in your company’s health insurance plan, will you be working enough hours (generally 30 hours/week) to continue to be covered? If not, are you 65 and eligible for Medicare? If you are under age 65 and will not have employer-provided coverage, it is important to look into health insurance (along with vision and dental) prior to making a decision about part-time employment. Medical insurance premiums can be high, so you will want to avoid an unwelcome surprise at the same time your income will be reduced.
Finally, if you are contributing to a company retirement plan, will you still be eligible to do so even if part-time? If so, will your part-time income be sufficient to allow you to continue to contribute? If you are able to do so, putting additional funds toward your eventual full-time retirement is a good strategy for reducing your income taxes and also gives you additional cushion when you ultimately move into full retirement.
Phasing into retirement can be a wonderful way to move into the next chapter of your life gracefully while still enjoying the rewards of working. The keys to doing this successfully are carefully reviewing your finances ahead of time to make sure you are ready for this change, talking to your employer honestly about your plans and timeline, and then making the most of the additional free time you have to explore new opportunities for your next phase. As always, a well-thought-out plan is the best way to ensure a smooth transition.
Julianne Andrews, MBA, CFP®, AIF®, is a principal and co-founder of Atlanta Financial Associates. She specializes in working with physicians and top executives in the healthcare industry. Her passion for working with physicians comes from being a pediatrician’s spouse for more than three decades. Her experience as a wealth manager in combination with her first-hand view as the spouse of a physician provide Julie with a deep understanding of the challenges the changing healthcare landscape presents and how they impact a physician’s financial well-being. Julie’s financial acumen has been recognized nationally, and she has been featured on Forbes’ list of America’s Top Women Wealth Advisors since 2017 as well as Forbes’ Best-in-State Wealth Advisors since 2018. Julie can be reached at email@example.com.