These are trying economic times for a lot of people, but seniors are especially worried about their seemingly murky retirement future. Saying a quick “adios” as you collect that shiny, gold watch is quickly becoming a thing of the past as seniors are delaying their retirement in order to reap as many monetary benefits as possible. Today’s guest poster, financial advisor Louis Mack, explores the ins and outs when it comes to considering a “soft-retirement”.
When my father retired, he put his work boots away for good, got out his fishing pole, and never worked another day in his life.
For the most part, this type of retirement was normal for members of my parent’s generation. Retirement marked the end of their lives as employees, ushering in an entirely new stage of life where activities wholly unrelated to employment were pursued.
Today, however, an increasing number of retirees are seeking part-time employment, both as a way to stay busy and productive, and because in many instances this extra income is necessary to keep retirement finances solvent.
Some companies have figured out a way to benefit from this shift, and are now offering what has been described as a “soft-retirement” option as a retirement plan for employees.
Soft-retirement refers to the process of allowing tenured employees at or near retirement age to scale back their hours, moving into a part-time position, as opposed to officially and completely retiring, cutting off all ties between employee and employer.
Many soft-retirement proponents argue that this offers both companies and employees the best of both worlds, ensuring that the company retains their most experienced and knowledgeable employees (if only on a part-time basis) and allowing the “retirees” to keep a stream of income and connection to their livelihood.
Many retirees are eager to scale back their hours, giving them more time to devote to travel, grandchildren or their health, but are not entirely ready to make a clean break from the workforce – both from a financial or quality-of-life perspective.
And companies who offer this option have found that holding on to long-tenured employees (who often have developed close relationships with clients) is beneficial, reducing the costs and losses in productivity that arise from normal turnover.
Furthermore, these phased-retirement programs allow companies to rely on the experienced, older workers to train they're new, generally younger replacements.
Many older workers, regardless of their financial standing, aren’t interested in giving up their career entirely, preferring instead to be engaged on a smaller scale. These workers relish the opportunity to keep their involvement in the company while gaining added flexibility in their work schedules.
Those participating in soft-retirement programs go through an official retirement procedure that enables them to cash company shares accumulated and make 401(k) withdrawals. Provided that they continue to work at least 20 hours per week, many phased-retirees are still able to collect health benefits and other perks — such as vacation time — through the company.
Other companies are structuring their phased-retirement plans as if the returning retiree is a consultant, an independent contractor outside the normal scope of employees with vested benefit packages.
Another way some companies are going about phased-retirements is to put the retiree on unpaid leave for a given amount of time, giving the employee some time to enjoy their retirement before deciding whether they want to return in a part-time capacity at a later date.
The downside to all this is that many companies don’t have the luxury of being so flexible that they can accommodate the desires of their older employees to dabble in part-time work, but more and more companies are seeing the virtues of phased-retirement and building this flexibility into their personal plans.
Louis Mack is an experienced retirement planner and financial adviser. When he’s not helping others plan their retirement he’s headed for the mountains on his latest camping trip.