According to a 2019 survey by the Society for Human Resource Management, the number of organizations offering informal phased retirement to some employees has risen by 15%. And while more broadly available formal programs are only offered by 6% of companies, many retirees are so focused on building their nest eggs that they never bother to ask their employers about what phased retirement options are available to them. Other seniors who are financially prepared to retire but unready emotionally stick to their familiar 40-hour work week rather than consider part-time work that could give them time to enjoy other aspects of life.
Here are three reasons why reducing your work hours could help to ease your transition into retirement.
1. Prepare for your retirement budget.
Whether you scale back your existing hours or take a part-time job, your monthly paycheck will probably look smaller than you're used to. Giving yourself this pay cut is a good opportunity to review your household budget and think about how you want to spend your money in retirement. Look for ways to economize, such as cancelling magazine subscriptions you never read, streaming services you never watch, or club memberships you never use. You might also identify debts that you want to work on paying down or eliminating before you retire, such as credit cards, vehicles, or your mortgage.
Once you've covered the basics, think about what you want your entertainment budget to look like. How much money do you want to allocate for travel? Do you want to invest more in your hobbies, or hire a coach or teacher to help you develop a skill?
One line item that deserves special attention is health insurance. If downshifting affects your employer-subsidized health care and you're not yet 65, you'll have to buy insurance off your state's marketplace until you qualify for Medicare.
2. Adapt your money mindset.
A financial advisor can help you coordinate your assets into a long-term retirement spending plan. During this downshifting phase, start getting comfortable with the idea that more money might be going out every month than is coming in. If building your nest egg was the end goal of a fulfilling life, then you'd never stop working. And if maintaining that nest egg is all you think about in retirement, then you'll never really enjoy your golden years.
Still, changing from a saving mindset to a spending mindset can be tough. As you downshift, start small. Treat yourself and your spouse to an extra date night. Toss out that old mattress that's breaking your back. Upgrade your home theater. Give yourself permission to have a little fun now so that you'll be ready to enjoy everything retirement has to offer once you stop working for good.
3. Experiment with your schedule.
That first Monday morning without work is a shock to many new retirees. Downshifting at least keeps some of the white space on your calendar filled in. You can use the skeleton that those reduced hours provide to build out a full retirement schedule that will keep you busy. Try some new things on your off days, like an online class or a sport you've always been interested in. Explore volunteer positions. Drop in on your granddaughter’s soccer games. Eat at that new lunch hot spot. Meet up with friends and talk about how they're managing their own retirements.
And if you need an extra meeting to fill in a blank, schedule some time to talk to us about how downshifting is going for you. Let's discuss what you're liking, what you're finding challenging, and how your financial plan can help to smooth the rest of your path into a successful retirement.