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Have you considered a phased retirement?

What you need to consider as you slowly ease into retirement.

Not ready for a move into full-blown retirement? Don’t worry, you aren’t alone. Many people look forward to retirement but for one reason or another aren’t ready to jump in with both feet. Maybe they aren’t ready for the sudden lifestyle changes. Maybe it’s lack of savings that’s holding them back. Or maybe they haven’t reached the company’s full retirement age. No matter what the reason, many people are choosing to phase into retirement instead of entering a complete, traditional retirement.

Using this option provides a number of benefits. You can keep working and continue making payments to your retirement accounts and savings plans. At the same time, you can also begin enjoying some of the benefits of retirement. Cutting back hours and decreasing your work responsibilities at a slow pace can open time for personal activities, travelling, and family. However, phasing into retirement is not something you should do on the spur of the moment or with little forethought. Planning is of the utmost importance as you negotiate this transition. You will need to calculate your ultimate retirement date, optimise your savings plan, and create a phasing schedule with your employer. Make this life transition the beginning of a new and rewarding stage of your life. Below are some key steps to think about: 

Talking to your employer

One of the first things to do is to talk to your employer about your plans. Find out the type of retirement programs your employer offers. It’s possible that the company has a procedure already in place to help you phase into retirement. These programs can include a gradual cut in hours and a search for your replacement. Even if such a program does not exist, it is still important to speak with your employer about your retirement. The company will need to know when you will be leaving so that they can find a replacement.

Involving your family

Talk to your family about your retirement plans. Although this decision primarily affects you, they will also feel the impact. Outline when you plan on retiring and how it might affect family dynamics, spending, and lifestyle. By making your family a part of this transition you will also be setting up an emotional support network to help you weather the transition.

Handing over your work duties

When phasing out of your job you will need to hand your work duties over to others in your office or someone chosen to replace you. It’s a good idea to finish all major projects under your direction before you retire. The projects that you can’t complete should be organised so that others can take over where you left off. Be sure to go over responsibilities and major issues with those replacing you. Doing so will help them make the move into your position. If you are self-employed, be sure you fulfil all contracts and obligations before retiring. If a family member is taking over the business, take some time to teach the responsibilities related to running your business. 

Cutting back work hours

As part of this phase, you may be able to cut back on your work hours. A gradual decrease will make the transition to full retirement less of a shock and help make the transition easier. Talk to your employer about such a plan and see if it can work for both you and the company. If you are self-employed this will be easier as you can set your own schedule.

Checking over your financial situation

Take some time to look over your financial situation. Check RAs, company pensions, savings, and any other investments. Know how much money you have available to support you after retirement or during this transition period. It might be practical to set up a two-stage retirement income plan where the initial step might include reduced drawings from retirement and non-retirement funds as you will still be earning albeit a lower amount and the second step will include full retirement fund income draws. It might be wise to contact a financial planner at this stage to determine how much you still need to save and to help you plan for the future to ensure your financial stability after you retire.

Present lifestyle and needs

Evaluate your present lifestyle to determine what will change or remain the same after you begin this phased retirement process. Think about what costs can be eliminated or which lifestyle changes can be made in order to keep your living expenses down. Prepare yourself for these changes; the earlier you begin, the easier it will be. 

Emotional preparation

Making the transition to retirement can be emotionally stressful. Making changes gradually and taking time to phase into retirement will greatly decrease this stress. Approach retirement with an upbeat mindset. Look at retirement as an opportunity to do all of the things you didn’t have time for while employed. Watch your attitude during this process. Having a positive attitude will play a massive role in successful ageing. Remember age is a chronological measure, but old is an attitudinal one.

Look for new hobbies and interests

Plan to stay active when making the transition (and afterwards). Doing so will help you deal with any negative emotional stress. Before you fully retire, begin looking at programs offered at your local community centre, classes at a local school, and hobbies that you have ignored over the years. Plan and begin to try some or all of them. Motivate yourself to experience new things. You may find an activity that brings you both enjoyment and fulfilment.

Questions to ask yourself begin embarking on this decision:

  1. List the reasons you have chosen to phase into retirement.
  2. As you phase into retirement, how long do you expect to keep working?
  3. How will your job description change?
  4. What effects on your income do you anticipate as a result of this transition?
  5. Does your company currently have an official phased retirement program? If yes, describe your phased retirement options.
  6. What benefits will your company provide during this period?
  7. How will you invest the time made available via reduced or changed work schedule and responsibilities?

Do you have any questions you would like answered by registered financial planners?

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