Full Vs Phased Retirement

Ever since the day you started working you probably started thinking about retirement….right? Of course this is a good thing. It motivates to save and invest. But on the other hand it can add huge pressure to your day-to-day life. That’s because a full retirement requires a huge wad of “Benjamins” that reach to the sky. Your retirement number might be so large that you simply give up. That’s why, for people who want to find some balance in life a phased retirement could be just what the Pilgrim ordered. Here’s why and how.

What is a phased retirement?

A phased retirement means different things to different people. But the common denominator is that you don’t go from full-time work to full-time retirement. You scale to your retirement by working part-time after you officially retire. This part-time retirement work can either be with your current employer or with a completely different firm. It can be for a short time or can it last for many years.

Why Phased Retirement Is Better

Let’s look at this from a purely financial standpoint. Your retirement income will come from pensions, investments, work and/or a combination of all three. You probably can’t do much to pump out more pension retirement income. And it may be very challenging to suddenly create a ton of investment capital. But you can almost always find something that will bring in a few shekels each month. Let’s consider a real example.

Abe is a nice man I met when he was in his 50’s. He and his wife Molly are now in their 70’s. Sadly, they are in trouble. They retired about 15 years ago without a care in the world – but they only had $250,000 in savings. He and Molly traveled, supported their kids and were generally living the life. The only problem was they spent just a bit more than they should have. This happened because they didn’t have a financial plan. They spent about $2,000 a month on average out of their savings. Over that 15 year period that extra $2,000 a month added up. Take a look at the chart below. They are just about broke now and there is a high likelihood that Abe and Molly will have to move in with their kids. That’s the last thing they wanted.

But here’s the thing. This sweet couple could have avoided this terrible situation had Abe and/or Molly worked part time. They didn’t even need to earn the entire $2,000 a month either. Had they just been able to bring in as little as $1,000 a month, they would have been fine. Yes….they would have still run a deficit but the burn would have been slow enough to have been survivable. See the chart below:

Are you planning a phased retirement or are you going all in? Do you have a plan?