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Retirement savings

November 21, 2011

Could gradual retirement work for you?

Not ready to retire full-time? You may want to consider gradually easing out of the workforce through “phased retirement.”

Opting for phased retirement allows you to retire in stages and lets your employer 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 retirement.

Phased or 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 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. She says, “Ultimately, the structure of the typical phased retirement depends on the organization and its pension policies and practices.

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 programs.

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 work.

If an organization has a defined benefit plan in place, Jaworski says 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.

In the case of 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 provinces over the last few years, phased retirement is likely to become an increasingly attractive option for many employees. If you think it may be right for you, consider the following:

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

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.

3. Consider what you want to do with your time: One recent retiree who took the gradual retirement route recommends making 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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