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.
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
|15 to 54
|55 and older
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.