For generations, retirement typically involved circling a date on the calendar during a worker’s 65th year, eating some cake at a retirement party, then putting work aside to relax throughout the last chapter of life, supported by Social Security and a generous pension.
Today, this scenario is much less common, as most people no longer have a pension to rely on, which means they may not have built up enough retirement savings to last. However, even for high-net-worth individuals, the idea of fully retiring may not be appealing.
If you find yourself nearing retirement age but aren’t yet ready to leave your career altogether, it may make sense to consider an alternative retirement timeline. Following are a few examples of how to make a gradual transition to retirement.
1. Phased retirement
Phased retirement refers to a gradual transition from full-time work to retirement, which has benefits for both the employee and the employer. Benefits of a phased retirement include:
• Continued pay and benefits — Phased retirement options can be a great way to continue earning a partial salary and certain benefits.
• Flexibility — Phased retirement offers flexibility to begin enjoying the slower pace of retirement while also remaining mentally engaged in the workforce. There are many different ways to approach a phased retirement plan, which gives both the employer and the employee flexibility to design a work schedule that meets their needs.
• Employer benefits — Phased retirement allows employers to continue benefiting from experienced employees’ skills and expertise at reduced labor costs. It also provides the employer with an opportunity to train replacement employees to eventually step into the vacated role.
2. Sabbaticals
Sabbaticals are extended breaks from work that give you an opportunity to explore your interests without fully leaving your career. They can be a great way to take extended time off work to try out different retirement scenarios and gradually transition away from the workforce. Benefits of taking a sabbatical include:
• Trial retirement — Taking an extended sabbatical allows you to test drive retirement to determine your likes and dislikes and formulate a plan for how you want your real retirement to look. Sabbaticals also give you an opportunity to structure your days as you would during your actual retirement. Are you engaged and fulfilled, or do you feel lonely and isolated? Use this time as an opportunity to consider what changes you’ll want to make to your daily routines and activities to be content in retirement.
• Hobby/interest exploration — A sabbatical can be a great opportunity to try out new hobbies and interests you may want to pursue in retirement. For example, have you always wanted to take up pickleball? Try playing a few times a week to make sure you enjoy it. If you love it, you can incorporate it into your retirement plans. If not, keep trying new hobbies until you find a few that stick.
• Reduced career burnout — Sabbaticals can be a great opportunity to rest and recharge from the demands of a busy career. Taking time away from the office allows you to return reenergized and ready to tackle your responsibilities, which can lead to increased productivity and career satisfaction.
3. Post-career gap year
Similar to a sabbatical, a post-career gap year can provide an opportunity for personal growth, allow you to explore different hobbies and interests, and help you formulate a plan for how to structure your retirement. If you’re unsure whether you’re ready to fully retire, a gap year can be a great way to gain perspective.
If you’re interested in a new career or considering starting a business, a gap year can give you the freedom and flexibility to try out a few options, build necessary skills, develop a business plan, etc.
This commentary is provided for general information purposes only, should not be construed as investment, tax, or legal advice, and does not constitute an attorney/client relationship. Past performance of any market results is no assurance of future performance. The information contained herein has been obtained from sources deemed reliable but is not guaranteed.
AJ Kratz, CFA, CFP, is a Private Wealth Manager and Partner with Creative Planning. Creative Planning is one of the nation’s largest registered investment advisory firms, providing comprehensive wealth management services to help align all elements of a client’s financial life, including investments, taxes, estate planning, and risk management. For more information, or to request a free, no-obligation consultation, visit creativeplanning.com.