The Flexible Retirement: Phasing In Life’s Next Chapter

3 minute read

How do you think about retirement? For many, it’s an abrupt transition from full-time work to full-time freedom from work. But, there’s another approach that’s catching on: Phased-in retirement. With a phased-in retirement, this period of life looks more like a slope than a steep hill. You gradually reduce your work hours and responsibilities over time, sometimes years, and ease into retirement at your own pace. A recent survey shows that when it comes to winding down our working years, two-thirds of people would prefer a phased-in approach.

Allison Schrager, an economist, Senior Fellow at the Manhattan Institute and columnist at Bloomberg Opinion says the idea of a phased-in retirement as well as thinking more creatively about how we work could be the keys to a better –- and more secure -– retirement for many people. This is especially relevant as we continue to move through the Peak 65® Zone and the number of people feeling uncertain about the funding of their retirement years grows. A recent study commissioned by the Alliance for Lifetime Income shows that two-thirds of Peak 65 Boomers -– that’s those who will turn 65 from now to 2030 -– will be financially challenged in retirement.

For many of these individuals, phasing into retirement will provide the stability needed for them to enjoy their next chapter. “I think a phased-in retirement is the future of retirement,” says Schrager. “People don’t want to just pack it in and sit on the porch. They want to still contribute, feel vital and have purpose.  And financially, many just need to.” As Schrager points out though, the phased-in approach is just one solution to solving the retirement puzzle; a puzzle that’s become harder to piece together because people are living longer and as such, retirement has become more expensive. “We effectively have gotten very good at the easy part of the problem, which is how do you save and invest while you’re working,” she says. The hard part? That’s decumulating–or spending your money in retirement–which as Schrager says, is a much tougher nut to crack.

Schrager, who’s made a name for herself in the risk management space, says that Peak 65’ers need to look at retirement like an economist studying risk would. “All financial problems are risk management problems,” she says. “The problems in retirement are you don’t know how long you’re going to live and you don’t know why your spending needs are going to change.” To navigate the uncertainty, Schrager says one option is to consider an annuity that could take some of that risk off your plate as you age. “As a financial economist, [I’m] always thinking about how people can get the biggest bang for their buck in terms of risk,” she explains. “It [annuitizing] is a bit of a free lunch.”

Schrager says one of her favorite ways to incorporate annuities into your retirement plan is by annuitizing for your fixed expenses, like housing costs and food. “If you’re someone who’s like, ‘Now that I’m older, I want to know what I’m going to have year to year,’ then I would definitely recommend finding a simple fixed annuity, and de-risking by handing off the problem to an insurance company.”

For many, the thought of so many different strategies and financial products geared at providing people with a more secure retirement can be overwhelming. If you’re feeling like it’s all “too much,” Schrager says you aren’t alone. “I’ve worked with economists who work on this, and they’re Nobel Prize winners, and they have help,” she says. For those who are ready to seek that help, Schrager says it’s important to find a financial professional who makes things easy to understand and really puts stock in what you have to say. “I think that’s always the most important thing…make sure that they make you feel heard and understood.”

Find out whether you have enough retirement income to phase-in to retirement by taking these easy-to-use tools. Watch the Your Money Map episode with Allison Schrager here.

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