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The Case for Phased Retirement

In the same way that flexibility has come to the workplace — where, when and how we work — so, too, has arrived the age of the tailor-made retirement. Phased retirements, bridge jobs, “un-retirement” and second and third acts have caught on. Workers are demanding it, and firms have good cause to accommodate the idea that work does not one day simply stop.

“One of the reasons is that our life-spans are expanding and people are healthier longer, and so there were a lot of wasted resources with people retiring on an old industrial age model,” says Stewart Friedman, a practice professor of management at Wharton and director of Wharton’s Work/Life Integration Project. “There is also, because of the economic pressures, the fact that workers have to extend their working lives to pay for their longer lives. It’s inevitable — because of the changes in medicine and lifestyle, it’s a lot less punishing for me to be doing what I am doing than it was for my grandfather.”

Friedman suggests that the transformation of labor markets is increasingly going to be helpful for people who want to slow down, but still want to be active. “It’s not all or none anymore,” he notes. “We are going to be seeing more and more people who reach retirement age doing the kinds of things that enable them to continue on a part-time basis, to still be active in ways that allow them to use their talents.”

Because people are delaying retirement both for economic reasons and by choice, “the reality is the 30-year career span doesn’t make sense anymore,” says Marci Alboher, vice president of marketing and communications for Encore.org, an organization that works with workers ages 50-plus on what to do beyond the crux of their careers. “It’s more like 50 years. So if that’s the case, what does the last 20 years of that look like?”

The Haves and Have Nots of Retirement

“There are all sorts of interesting formats for retirement – more interesting than the stereotypical thing. My mom worked every day until she didn’t. That now is actually the minority story,” says Joseph Quinn, an economics professor at Boston College. Quinn and Kevin E. Cahill, a research economist with the Sloan Center on Aging and Work at Boston College, have studied patterns in workforce withdrawal. They found that 60% of workers leaving their main careers end up doing something else — a bridge job, a part-time job or a full-time job that might not fit the definition of a career job. “We actually find a fair number of people, 15%, who are out of the labor force for about four years later come back into the labor market,” says Quinn. “We call these un-retirements. People come back either because of finances or because they are bored to death.”

Looking at the question of what workers did after the end of their main careers, Quinn and Cahill found that the biggest group of workers who chose to retire outright were generally middle class — the “union worker, someone who was a member of the UAW, who has pretty good Social Security and union pension benefits, whose work was not that inspiring and who may move to Florida and really just isn’t interested in working anymore.”


“Because of the changes in medicine and lifestyle, it’s a lot less punishing for me to be doing what I am doing than it was for my grandfather.”–Stewart Friedman

And who are those who returned to work after the end of their main careers? “It makes for a fascinating graph — it’s basically u-shaped,” says Quinn. “At the low end [of the economic scale], people are more likely to take a job on the way out, people in the middle say, ‘I’m out of here,’ and people at the upper end are more like the people at the lower end.” But the reasons people at the upper and lower ends of the income scale keep working is very different. “If you ask people at the low end, they say ‘I need the money,’ they are working because they have to. At the upper end, they say ‘I’d like to make a contribution.’ They are working because they want to.”

While there are benefits in physical and mental health to working longer, these benefits are not distributed evenly to workers across the board. People who took part-time work after retirement were physically healthier, according to University of Maryland and California State University at San Bernardino researchers analyzing data from 12,189 U.S. workers between the ages of 51 and 61 interviewed every two years between 1992 and 1998. Mental health benefits, however, were enjoyed only by workers who continued in new jobs related to their previous careers, according to the study, published in 2009 in the Journal of Occupational Health Psychology. This may be from the stress of adapting to new work, or because retirees with financial problems are more likely to seek work after retirement, according to co-author Mo Wang.

Other disparities are having an impact on how people retire — and who. Olivia S. Mitchell, Wharton business economics and public policy professor and executive director of Wharton’s Pension Research Council, has found that women are delaying retirement because they have no choice. Comparing data from 1992 and the present day, Mitchell and co-author Annamaria Lusardi, chair of economics and accountancy at the George Washington University School of Business, have determined that factors like education, more marital disruption and fewer children than prior cohorts are delaying retirement for women. “But household finances also play a key role, in that older women today have more debt than previously and are more financially fragile than in the past,” they write in a working paper for the National Bureau of Economic Research, “Older Women’s Labor Market Attachment, Retirement Planning, and Household Debt.” Those women who reported excessive debt and were financially fragile were the least financially literate, had more dependent children, and experienced income shocks, they found.

Says Mitchell: “We are revisiting what we mean by retirement, and it’s very clear that the definition of what people do even into their 70s is changing a lot, and people are continuing to work full time, continuing to work part time, and that has increased more for women than for men. There has been a big change in family structure, increases in divorce have left women more on their own, they may not be dependent on their husband’s pension or Social Security benefits, and of course women are living longer than men. So they have more need to think ahead to retirement.”

Phasing into Retirement

For those who can afford to ease out of fulltime work, the options are flourishing. Some companies are offering phased retirement plans — a way for workers to reduce the number of hours they work while phasing in retirement benefits. The U.S. government has been rolling out the idea in many of its agencies. Faced with the fact that nearly a third of its workforce will be eligible for retirement by September 2017 and the potential loss of institutional knowledge that would bring, the government created incentives for workers to retire gradually. Under prior law, workers who were eligible for retirement but wanted to continue part-time had little economic incentive to do so, since retirement benefits would often be equal to or greater than their salary would be for part-time employment, according to the U.S. Office of Personnel Management. The government’s phased retirement program, whose regulations were approved in 2014, allows workers to retire from part of their employment while continuing in another part of the job and continuing to earn additional retirement benefits proportionate to the new level of employment. In exchange, some workers are required to spend 20% of their time mentoring new generations of workers.

Various surveys of older workers show that between 60% and 80% would be interested in staying in the workforce on a more limited schedule beyond formal retirement. The advantages for employers are manifold: transfer of skills and institutional knowledge to younger workers, the ability to replace workers with less pressure to find the right candidate immediately and lower turnover costs. The rollout of phased retirement for federal workers was hailed as the beginning of a wave.


“The reality is the 30-year career span doesn’t make sense any more. It’s more like 50 years. So if that’s the case, what does the last 20 years of that look like?”–Marci Alboher

But it hasn’t turned out that way. Federal workers are participating in phased retirement in very small numbers, the government says. Part of the reason may be that individual agencies have been slow to issue specific guidelines on how the program works. Some federal employees say they would like to sign up for phased retirement, but can’t, since not all agencies are offering it. The Social Security Administration, for instance, has opted to not make it available to its workers. Why has participation been so low?

“I think that most of the federal workers, the older ones, are still covered by defined benefit pensions where you are rewarded for the number of years you are employed, so to the extent that there is a big bump up after so many years, it’s totally rational for people to delay retirement a bit and wait to hit that sweet spot,” says Mitchell. “People may have had wealth divided in divorce, and many people are coming into retirement with less money than they thought they had. And [in the aftermath of] the housing bubble, they don’t have as much equity as they once did, or they are feeling vulnerable because of the volatility.”

Managers at federal agencies complained that, from their perspective, phased retirement was essentially a form of job sharing, and maintaining more workers was both more expensive and troublesome. For some federal employees looking to ease into retirement, there is a strong incentive to do so without using phased retirement. Some workers have banked enough time in unused sick pay and vacation that they can give notice of retirement and spend their last few months essentially working half time — but at full pay, and without the added workload of training a replacement.

Observers who thought the federal government’s introduction of phased retirement would quickly ripple into private industry might be disappointed. Estimates vary on how many employers have phased retirement programs, but a 2015 Society for Human Resource Management survey of 463 U.S. HR executives found that 8% of organizations had formal phased retirement programs, and 10% offered more informal programs.

“In terms of formal phased retirement programs being institutionally supported, I think we are stuck in a rut,” says Anna Rappaport, a member of the advisory board of Wharton’s Pension Research Council and founder of Anna Rappaport Consulting. “At the same time, if you think about something that is not labeled as formal phased retirement, other things that go on all the time, any kind of organization that has a lot of part-time employees and different work arrangements, they may have been having phased retirement de facto for years — for example, nurses, who have a lot of different kinds of work arrangements, and others who step down in pieces.”


“In terms of formal phased retirement programs being institutionally supported, I think we are stuck in a rut.”–Anna Rappaport

“Evidence seems to show most employers don’t offer phased retirement because they haven’t been forced to do it yet,” says Mitchell. Moreover, there are barriers that may be hindering its spread. “In countries like Japan, it’s very normal for a company to have an older worker retire from Job A, and have him working in Job B half time for half the price. So it’s perfectly acceptable for older employees to be rotating to different parts of the company, to retain the knowledge. In the U.S., there are age discrimination laws that make it difficult to take an older worker and put him in another job for lower pay, so there are structural obstacles. It is also the case that in Japan it’s culturally acceptable that people can move to a part-time or less prestigious job.”

Another Chance at Ideals

Some of that experience may be coming back onto the job market because it has great value to employers. “We know the Great Recession led to a lot of folks losing jobs and not being able to find new jobs,” says Mitchell. “They were pushed out of the labor force, and now that the economy has picked up we are starting to hear some employers having discussions of finding ways to keep older workers on –especially in the service profession, where the evidence seems to show that older workers tend to be more successful. It’s a gross generalization, but they tend to have better customer service skills.”

Others, those who can afford it, are looking to retire from retirement — and to contribute in a more meaningful way, or a different way, than they did in their main careers. “We are seeing a lot of people in the market who may have put aside their earlier ideals or couldn’t find a way to make a living in the social sector,” says Encore.org’s Alboher. “It doesn’t mean they weren’t contributing in their corporate career, or they may have had side projects or sat on boards or community groups.”

Now, however, many are looking to put their skills to work through groups like Encore.org. The organization was started, she says, to create a “new vision for the life stage that is neither old nor young. What do the years between your 50s and 70s look like when you are done with your career but there is this new phase? How could we be using the talent and experience we have in an aging population to solve big social problems and pass on knowledge to younger generations?”

Encore.org began a pilot program in 2009 that, with foundation underwriting, placed 10 fellows in Silicon Valley — seasoned workers who wanted to bring their skills to social service agencies. By 2016, 740 fellows had been placed with organizations across the U.S. like Aspiranet, the California agency that provides services for children, and ESC of New England, a Boston agency that consults with non-profits.

“People are often stuck and can’t make that transition to the non-profit social-agency sector,” says Alboher. “They’ll send a resume to a nonprofit, and [the non-profit] will ask, ‘What am I going to do with a corporate person or a marketing person from Hewlett-Packard?’ So we are figuring out a scalable passageway so people can apply to and be matched with social-purpose organizations. It creates a new chapter of work for people who may not want to work as intensively as they did in their career.”

This kind of migratory path for the post-career worker, she says, is related to other movements — the anti-ageism movement, the lifelong civic engagement movement, and of course, the idea that going through life with just one career might be passé. Says Alboher: “Our data tells us that there are a lot of people who will continue to work in a way that makes sense for them — whether they call that retirement, or just the next phase of what they are doing.”

Knowledge@Wharton, November 2016