The Wiser Financial Advisor: "Phased Retirement" #140

In this episode host, Josh Nelson, explores the concept of phased retirement, a flexible approach to transitioning from full-time work to retirement. Learn how it benefits both employees and employers, with insights on planning, financial considerations, and work-life balance. Whether you’re nearing retirement or supporting employees through the process, this episode provides valuable strategies for a smoother transition. 

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Transcript

Wiser Financial Advisor – Phased Retirement 

Hi Everyone, and welcome to the Wiser Financial Advisor podcast with Josh Nelson, where we get real, we get honest, and we get clear about the financial world and your money. This is Josh Nelson, Certified Financial Planner, founder and CEO of Keystone Financial Services. Let the financial fun begin! 

Today we are talking about planning for phased retirement. You may not have heard that term before, but in our world we see this all the time. Over the last 25 years that I've been in this industry,  I’ve been able to help a lot of people retire. As they go through a lot of decisions financially, there's a big emotional component to that as well. So I am thrilled to have you here. We're going to be diving into an exciting and increasingly popular trend in retirement planning, which is phased retirement. 

I have a personal example for this: my dad. He's 81 and just retired a few years ago. He worked with the same company for just over 50 years. It worked out really well for my dad in that he actually had two careers. He was a chemistry teacher. He also was a salesman for an animal feed company. A lot of teachers have a side gig and that was his side hustle just on weekends and through summers. His combination of jobs gave us a lifestyle where we were able to do some trips and things like that, and my parents were able to help with my college. So the financial end was good. But as he retired from teaching after 36 years, he went into the next phase of working for the animal feed company. Over the years, several times he tried to retire and they kept saying, “No, wait, why would you retire? We still need you.” It was almost like he was in a consulting role. 

My dad is a great example of how we go into full-time work, whether that's working for somebody else or being self-employed, and we put in a lot of hours, a lot of effort, and many people will keep going until they are 95 or 96 years old. Some people will keep going strong all the way until the end and they love it. But other people may want to do a bit less work-wise, and put more into their personal lives, whether it be for health or for travel, things like that. But they don't want to completely retire all at once. So it could be a gradual transition out of the workforce. For some that means shifting to part-time work consulting or even starting a business. I've seen that happen on a number of occasions where people left their big corporate job that they had been at for years and transitioned their retirement benefits, and really eased into the next chapter on their own terms. 

I've also seen a lot of situations where people will go cold turkey—they’re working full time, and they retire, and that's it, at least with their work. They go play pickleball and golf and travel and hang out with their family and they're perfectly happy. But other people might be looking at it from a phased standpoint. So, think about what's right for you. As you're planning your own retirement, it may not be something that happens all at once. Let's talk about that, both the financial and the emotional benefits and how you can create a plan that would work for you. 

Phased retirement is exactly what it sounds like. It's a gradual transition from full-time work to full retirement. We've got a number of clients that are doing that. Even if they're in big corporate jobs, if their company allows them to have the flexibility to go to, e.g. 70% time, they may be able to gradually phase back their hours or number of days they work. And so that flexibility from some employers allows them to do that or in the case of somebody that has a business or has been doing consulting, maybe it’s handed off to somebody else or maybe even the business is sold. This could be within family members or not. Oftentimes there's a huge benefit to that buyer to have you phase out more slowly so you can contribute all your knowledge and the background you’ve been part of.

So why is this trend growing? Well, for one thing, people are living longer and healthier lives in general. Certainly there are situations where that's not the case, but often people do spend 20, 30, even 40 years in retirement. Sixty years ago, that was not a thing. In a lot of cases, people didn't even draw their Social Security benefits because they passed away in their 60s or even earlier, before they collected a single Social Security check. Now people are living 20 – 30 years longer, and that's a long time to be without the steady paycheck, especially in cases where maybe people didn't save enough for retirement or maybe they just want a more robust retirement or be able to help grandkids or give more to charity or whatever that might be. Phased retirement would allow them to have more money to be able to make that happen. 

Everybody gets to do this on their own. It's an individual journey, a Choose Your Own Adventure. Phased retirement does reduce the financial pressure on your savings. Also, many people find that they're not quite ready to retire completely, and that was more of the case with my dad. He worked for a company that was flexible enough so that he was able to start putting in less time, but he wasn't ready to completely let go of the work relationships and customers he’d worked with for so many years. 

For those of us who are still working the day-to-day, there's a lot that you get from work besides money. In my business, many of you have been around for the entire 25 years that I've been here. That can be difficult to replace. If I was just to retire right now—and I'm not planning on that anytime soon—I would miss what I’m doing and the people I interact with. I get a lot from work that feeds me, not just the money part of things. So doing a phased retirement really allows you to enjoy some of those non-financial benefits too. 

I like talking about making wise financial decisions and being your partner in that. And one of the advantages of a phased retirement is financial. By continuing to work even part-time, you reduce your reliance on your retirement savings, your investments, and possibly even delay drawing some other benefits like Social Security or a pension, things that if you wait will give you a larger check later on. That can have a significant impact on your overall financial health. One of our favorite things is to play “What if?” If you find a way to not have to draw from your investments, a way to be able to wait to draw Social Security, that can add up to a lot of money over time. 

Delaying Social Security benefits makes a big difference, because after you reach full retirement age, which for most people is 67 now, your benefits increase by about 8% per year up until the time you hit 70. It doesn't go up after that. Those few years could allow you to draw a bigger check. Of course, Congress can always change how Social Security works, but as far as what we know now, it is a guaranteed return that you won't find in most of your investments anywhere. So continuing to work also allows you to keep up your investments and even contribute to retirement accounts. You could still be putting into a 401K or an IRA or Roth IRA. That was the case for my dad. He was still contributing to his company's 401K and gaining matching. Also, during those years he didn't have to take anything out of his investments; he was able to just let things continue to grow. 

Even small contributions can make a big difference over time. Any of us who have some years behind us, wish we had started earlier with saving or investing more. And if you're over 50, you can take advantage of catch-up contributions. Not to reveal my age, but I will turn the Magic Age this year that allows me to make catch-up contributions. 

If you start to retire before age 65, there’s another financial perk if you keep working: your employer provided health insurance. This could allow you to bridge the gap to when you qualify for Medicare at age 65. Working another job might allow you to pay medical insurance on your own, or maybe that new employer provides some medical coverage. 

We love to play with numbers as part of the “What if?” game. “What if I did XYZ, and it could solve something that's missing right now?” If your finances don't support being  able to travel and that's your thing, or whatever it is that you’d like to do more of, phased retirement could be a way to do it. If investments and Social Security doesn’t support that, working a part-time job or doing some consulting could allow for a big win in your emotional life. It certainly would for me if I fast forward to 20 years from right now. I would see a gradual transition being a lot more fun, maybe scaling back as I get older as opposed to doing it all at once. 

If that's a choice for you, you might consider it. You know, it could be that there's some flexibility there or some moves that you could make that would allow for more of a gradual transition from more of a fast pace to a little slower pace over time. A smoother transition would allow you to start exploring some new interests and activities. Maybe you haven't had time to play golf or do pickleball, and that was exactly my daddy's case, not with pickleball but with golf. Once he retired from teaching, he said, “You know what? I've always wanted to actually learn to be a decent golfer.” So he spent the time on it and now that's become a huge part of his retirement. 

And let's not forget about relationships. Maybe you and your spouse have been in the workforce for decades. Your coworkers might feel like a second family, and they're all still there. Easing into retirement might allow you to maintain those connections while building some new ones along the way. Ultimately, we want to create a plan, you know, this is about financial planning, which means we're being proactive. 

Having a plan is better than not having a plan. Some people don't like to do financial planning because they say, “Well, there's so much up in the air with politics and Social Security. Also, how do I know how long I'm gonna live?” But that would be like a business saying, “We're not going to have a business plan because there's just too much uncertainty out there.” The point of putting together a plan is not that we're predicting everything that's going to happen, but trying to anticipate from where we are now. That's pretty solid as far as knowing where all the numbers are in your financial situation right now. Then we gain some clarity and set some targets. Those targets may move in terms of where we want to end up. But it’s possible to look at how much we've saved and what's there right now for Social Security, pensions, and other things like that. It’s possible to ask what you expect your expenses to be in retirement and whether you could afford to reduce your income a lot and still maintain your desired lifestyle. Maybe a phased retirement would allow you to bridge that gap. 

We always recommend working with a Certified Financial Planner (CFP). Here at Keystone Financial Services, all of our advisors are CFPs. That's the gold standard when it comes to the financial industry. It means that we are cross-trained, much like a holistic, functional medicine doctor. They look at any situation and check all the tools and resources to get you where you want to be from a health perspective. We're doing the same thing from a financial perspective, and working with a CFP also means that we are a fiduciary, so legally we have to give you advice that’s in your best interest. That’s the highest standard that comes into play when it comes to advice. 

If you’re thinking about phased retirement, talk to your employer. Many employers have some flexibility where they allow people to phase out by reducing hours, maybe even entering a consulting role. Think about what the possibilities are, because that could benefit both you and your organization. Ultimately, this is just about exploring new opportunities as you get closer to retirement. Test the waters, play with the stuff that might give you a better feel for what this looks like. 

I hope you're feeling inspired and at least looking at the possibilities of phased retirement. Certainly use us as a resource that can partner with you to look at what's possible. Thanks for joining us today. We just appreciate you and appreciate the partnership that we get to have. As always, stay wise, take care, and God bless.

We love feedback and you can pass it on to me directly at josh@keystonefinancial.com . Please stay plugged in with us, get updates on episodes and help us promote the podcast by rating us 5 stars and also subscribing to us at Apple Podcasts, Spotify or your favorite podcast service.

The opinions voiced in this episode of the Wiser Financial Advisor with host Josh Nelson are for general information only and not intended to provide specific advice or recommendations for any individual. To determine what may be appropriate for you, consult your attorney, accountant, financial or tax advisor prior to investing. Investment advisory services offered by Keystone Financial Services, an SEC registered investment advisor.