Newhouse News Service, November 9, 2004, Tuesday

Newhouse News Service

November 9, 2004 Tuesday

SECTION: FINANCIAL

HEADLINE: Easing Into Retirement Can Benefit Worker, Company

BYLINE: By DORY DEVLIN; Dory Devlin writes about workplace issues for The Star-Ledger of Newark, N.J. She can be contacted at ddevlin(at)starledger.com.

BODY:
Retiring from a lifetime in the work force traditionally means cleaning out a desk or locker, the bittersweet moments of a retirement party and a sudden shift to a vastly different daily routine.
Some people immediately take to newfound freedom. Others find themselves at loose ends with so many free hours. Some find they aren't financially ready to get by without a steady paycheck.
Some retirees find their way back into the work force, on either a full- or part-time basis. But scholars and advocates for the senior work force say this process could be smoothed in ways that benefit both employers and employees.
"Phased retirement can be absolutely ideal for workers and employers when it is fully voluntary and when workers fully understand what the offer entails," said Sara Rix, senior policy adviser for AARP, a lobbying group for older-than-50 Americans. "The decision must be based on individual circumstances and good financial planning and foresight, not, 'I would really love to work half time.' You don't want workers to opt for pensions at too early an age if they are not able to sustain themselves comfortably at a later retirement."
Phased retirement essentially means a gradual reduction in work hours and responsibilities. Demographics suggest phased retirement could be a hot topic and a natural fit for a changing work force.
In the next few years, the nation's 67 million aging baby boomers will begin to retire in large numbers, as the supply of younger workers is expected to shrink.
Employers will be able to turn to their older workers: Nearly 70 percent of workers age 50 to 70 plan to work during retirement, or never retire, according to a 2003 AARP study.
A survey by Watson Wyatt found one in three older workers would like to take advantage of phased retirement. Of those already in phased retirement arrangements, 28 percent said they are doing so because they need the income, while 42 percent are phasing out because they enjoy their work.
So far, phased retirement seems a bit more common in academia.
Twelve years ago Ernest Reock retired as director of Rutgers University's Center for Government Services. But you can still find the professor emeritus in his campus office a few days a week.
For Reock, retirement meant the chance to shed his title of 32 years, but keep his office so he could continue researching, writing and lecturing on a reduced schedule.
"I was frustrated in the latter years (as director.) There was so much administrative work, I didn't get a chance to do the research I like to do," he said. "When I retired, I decided to stick around and catch up with some of those things."
Phased retirement also has been gaining ground in the past decade in fields such as health care, where workers are in high demand. Among all employers, it is catching on slowly, and mostly informally.
Employers tell researchers they are open to phased retirement as a way to hold onto experienced talent, but they are not eager to make it a formal practice.
"They are surprisingly open to it, but they want to keep control over who has the opportunity and when they have the opportunity," said Robert Hutchens, a Cornell University labor economics professor who wrote a 2003 study on employer phased-retirement policies.
About 13 percent of companies offer phased retirement, and another 13 percent plan to do so, according to a 2003 survey by the Society for Human Resource Management. Yet Hutchens found that while few companies report phased retirement as a formal written policy, 73 percent of companies would permit an older employee to reduce hours before official retirement.
As the work force continues to age, however, phased retirement's foothold is uncertain, partly because of pension structures that limit wages and base pension amounts to the final years of service, which can render phasing out of work a costly choice.
Health insurance may also be a hindrance. When phased retirement takes the form of reduced hours before official retirement, Hutchens found 34 percent of companies report health insurance coverage would cease, and another 26 percent say coverage would depend on the hours worked. When phased retirement means returning to work part time after official retirement, 31 percent of companies say the rehired retiree would receive no health insurance benefits.
On the other hand, proposed changes in the Social Security program could encourage later retirement and allow older Social Security recipients to earn wages without losing benefits. Many seniors are living longer and healthier lives, and may be interested or in financial need of working beyond traditional retirement ages. Employers may look to hold onto them if a projected labor shortage materializes. "Phased retirement may be an idea whose time has come," Hutchens writes.
If phased retirement becomes more widely offered, employees need to carefully evaluate whether the option meets their needs financially, especially if it means taking a lump-sum pension payout or a reduced pension because they are retiring earlier. When defined benefit pensions are taken in lump sum, companies can save money by eliminating the value of early-retirement subsidies, enhancements many employers added a decade ago to encourage older workers to leave.