For some Americans, retirement means quitting work and then spending time traveling, gardening and visiting grandchildren. But since the golden years can now stretch across three decades, many people in their 50s, 60s and 70s are contemplating a more gradual transition to a life without paid work.
More than two-thirds of pre-retirees over the age of 50 plan to work part time or cycle between periods of work and leisure, according to a recent study by Merrill Lynch and Age Wave, while one in 20 want to continue in a full-time job. Just over a quarter said they never want to work again.
Retirees who work stay mentally and physically active, nurture social connections and maintain a sense of self-worth. The extra money is also a big benefit, of course, providing funds for discretionary spending, growing a nest egg or paying bills.
“People see that they’re going to live longer, and they’re starting to recognize that maybe the financial model of working from 25 to 65 and then having 20 or 25 years of relying on those [retirement] assets is really tough,” says Roselyn Feinsod, a senior partner at Aon Hewitt.
Phased retirement is different for everyone, but typically involves scaling back on work to allow more time for hobbies and travel with a smaller financial strain on the budget. Here’s how it can work for you.
1. Start researching your job options five years before retirement.
While it’s never too early to save for retirement, it can be tough to visualize what your day-to-day life will look like until you’re close to retirement age. By your late 50s, though, you’ll know how much work you can physically handle, and whether you’d prefer to stick with your current job or try something new.
Investigate whether your current employer offers or would consider a phased or flexible retirement arrangement. If not, research other job options, such as working as a consultant or getting into a new field. If you plan to move in retirement, find out what job opportunities exist in your new location. Or, see if your current employer would let you work remotely. “Technology has really enabled telecommuting and working in other locations,” Feinsod says. “We have a much more virtual and flexible workplace now.”
Regardless of your job in retirement, make sure to remain employable and competitive with younger workers. Spend time now networking or brushing up on new skills or languages. Sign up for classes at the local community college or online.
2. Determine how much money you need to earn.
For many people, working in retirement is not just about personal fulfillment; it’s also a way to stretch their finances. Meet with a financial planner to see if you’re on track to hit your retirement goals. If you’re in good shape, you might consider volunteering or low-paid but meaningful gigs.
If not, figure out if you can close the gap by working only part time or if you need to work full time longer. For some workers, the goal may be to earn enough to delay dipping into retirement accounts or tapping Social Security for a few years.
3. Plan for health insurance.
If you want to retire before 65, you need to factor in the cost of health insurance if your employer doesn’t supply it. Current retirees under 65 can buy insurance on the Obamacare exchanges, but that option will likely change under the Trump administration. Still, make a plan to cover the cost of a plan, or find a part-time job that includes health insurance.
Related: Aging in Place: 5 Things You Have to Do to Retire in Your Own Home
Even if you’re eligible for Medicare, make sure to set aside enough (or earn enough in your part-time job) to cover out-of-pocket costs. In 2016, a 65-year-old couple would need $260,000 in savings to cover all of their health care costs in retirement, including Medicare premiums, co-payments and deductibles, and out-of-pocket costs for prescription medicine, according to Fidelity Investments.
4. Plan for downtime.
One of the big benefits of a phased retirement is the opportunity to figure out how to spend the extra leisure time in full retirement. Now’s your chance to try new hobbies, plan bucket-list adventures, or see if golfing five times a week is as fulfilling as you’d hoped.
“It’s just as important to plan your activities in retirement as it is your money,” says financial coach Christine Moriarty. “If people don’t have a reason to get up in the morning, it puts a lot of stress on them personally.”
If you are retiring with your spouse, prepare for increased time together. More time together sounds great in theory, but in reality it can be difficult for couples grown used to specific roles and time apart.
5. Be flexible.
By definition, a gradual retirement is one of continuous change. You may not keep your job as long as you want. Three in five retirees left the workforce earlier than planned, according to a December study from the Transamerica Center for Retirement Studies. The majority were forced to retire for employment-related reasons, including job loss and organizational changes. More than a quarter stopped working for health reasons, while over 10 percent said they needed to care for someone else.
If you do keep working, finding the right balance of work and leisure may take time, especially if your job isn’t as flexible as you’d hoped. If the arrangement isn’t working out, make tweaks until it does.
“Anytime there’s a major change in your life, you have to be flexible and adapt,” says Cyndi Hutchins, director of financial gerontology for Bank of America Merrill Lynch. “This is no different.”