Many people consider retirement to be final, but implementing a phased retirement could leave you with an extra $148,000 (or more, both of which depend on the scenario) when you finally stop working entirely. But what is phased retirement? And is it the right choice for you?
📩 Be the most interesting person in the room with stories from Parade’s daily newsletter 📩
What Is Phased Retirement?
Just as it sounds, phased retirement is the process of phasing out of work rather than quitting cold turkey. Retiring cold turkey can be emotionally and financially taxing, but delaying allows you the opportunity to test it out and find your personal retirement style.
If you’re working a traditional job for an employer, you’ll want to negotiate a 60% work schedule based on your current position. This typically looks like going from 5 working days to 3 and taking a 40% salary cut. The key here is to negotiate this reduction before announcing retirement. Employers are less likely to negotiate if they know you’re on your way out.
Related: She Worked 30 Years To Retire Early, but Her Husband Thinks Its ‘Not Fair’— and Psych Professionals Have a Warning for Them
Boosting Social Security and Savings
You’re eligible to take early Social Security benefits at age 62, but doing so will lower your overall monthly benefits for the rest of your life. Delaying until FRA (or even further to age 70 for even higher monthly checks) will get you more overall. It could even add $148,000 to your retirement funds, according to a 24/7 Wall St post.
For a worker making $90,000 a year with a portfolio of $620,000, taking retirement at age 62 will leave you with approximately $47,480 yearly if you collect Social Security and take a 4% draw from your portfolio. Delaying that until age 64 and using those transition years to negotiate a 60% phased retirement increases that yearly total to around $54,320 by allowing you to boost Social Security benefits and continue padding your investment account.
If you plan for your retirement funds to last from age 64 to age 88, that could add around $148,000 to your overall total. The combination of delayed benefits, continued salary, and a boost to your 401(k) in those transitional years leaves you with more money overall while also easing yourself into your next chapter of life.
If you delay even further, transitioning at age 65 and taking full retirement at age 67, those numbers go up even more.
Related: The Social Security ‘Penalty’ for Working in Retirement Isn’t What Most People Think It Is
Phasing into retirement is a financial strategy that will pay off in the end. For workers willing to have one honest conversation with their employer, phased retirement may be the most underused financial strategy available to people in their early 60s.
