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Phased retirement: Work a bit, collect a bit

If you had the opportunity to ease into retirement by working part time while drawing part of your pension, would you do it? Current federal rules say workers who are covered by traditional pensions, or defined benefit plans, must retire completely from that company to collect benefits. But that may soon change.

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The Internal Revenue Service is proposing to allow phased retirement, a change that could ease the transition from employee to retiree for millions of workers and help alleviate the upcoming worker shortage.

The Social Security problem that's been front page news for quite some time centers on a future imbalance that has too many retirees siphoning money from a pot that will have too few workers plunking money into it. That same inverted-pyramid scenario may portend too few employees to fill all the jobs needed to keep the American economy rumbling along.

"Our research suggests that if we expect to continue experiencing the domestic product growth that we've seen historically, we don't have the workforce to sustain that growth," says Valerie Paganelli, senior retirement consultant at Watson Wyatt, a Washington, D.C. consulting firm.

"Even with immigration, more women in the workforce, off-shoring, the impact of technology and extending the working lifetime all layered together, there still may not be enough people to get us there."

Consider the numbers from the government's Bureau of Labor Statistics.

16 to 24 0.9%
15 to 54 0.5%
55 and older 4.1%

Some of the key aspects in the IRS-proposed phased-retirement program are that participation by employees is voluntary, employees must reach age 59 1/2 to participate and employees must reduce their work hours by 20 percent or more. In addition, employees would still be entitled to the same benefits upon full retirement as an employee who doesn't opt for phased retirement.

"If they lose those protections it would be like, why bother," says AARP senior attorney Mary Ellen Signorille. "But no matter what the situation, people need to sit down with paper and pencil and figure out the numbers."

The government has long allowed employees who are covered by a 401(k), or defined contribution plan, to draw benefits after age 59 1/2 while working.

-- Posted: April 22, 2005




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