Phased retirement gains interest as alternative to layoff

As companies struggle to find a balance between cutting labor costs and retaining talent, many are reevaluating phased retirement, which enables employees to work beyond retirement age by reducing hours and salaries. But as analysts at Deloitte find, this balance can be tricky.

"Phased retirement allows baby boomers to reduce their work schedules and salaries to fit their maturing lifestyle, and in many cases allows them to work past the traditional retirement age," explains John Fiore, a principal within Deloitte Consulting's Human Capital practice. "This can help a company significantly reduce its labor costs, without allowing critical knowledge and talent to walk out the door. It can also facilitate a smoother transition to the next generation of workers."

CNBC retirement expert and Boomer Market Advisor November 2008 feature subject Bill Losey says phased retirement or decreasing workload for those reaching retirement age is one solution for boomers who are nervous about entering retirement relying on savings, portfolio earnings and government benefits alone.

"Discuss reducing the number of days you work from five days to four, or five days to 3 days. Perhaps you can work four 10-hour days instead of five 8-hour days. This way you may be able to maintain your present income level but generate an extra 52 days off per year (that's seven weeks of vacation time)," Losey advises in a March Q&A piece for "On the Money."

Phased retirement offers one solution to maintaining critical workforce in a cost-efficient manner, according to Deloitte. But not every company needs to hold on to every single retiring worker. There are ways in which Deloitte says companies can retain older workers that can save on labor costs and improve efficiency:

  • Pick your spots. Effective programs are designed around the needs of a workforce segment that are particularly critical to business success.
  • Use existing retirement programs to supplement current income. Many prospective retirees are interested in scaling back their hours, but are not able or willing to absorb the full hit to their income. By offering people early access to their retirement income programs, they can supplement their paycheck today while reducing their future retirement needs by remaining in the workforce longer.
  • Capitalize on the transition. Phased retirement not only allows a company to reduce its payroll, it also provides an opportunity to move people to less costly benefits programs. For example, one of the biggest draws in the U.S. for phased retirement is that it allows employees to extend their healthcare coverage. But that doesn't mean their level of coverage has to stay exactly the same. Shifting to aggressive consumer-driven programs as a condition to the phased retirement program can save the company -- and the employee -- money without a significant decline in coverage or service quality.
  • Phased retirement is a great option for older employees. It allows them to scale back their work hours while maintaining a healthy income for a longer period of time. It also enables them to keep doing work that is meaningful and valuable, and helps them fulfill their personal responsibilities.
  • The potential benefits for a business are even greater. Phased retirement allows you to reduce your labor costs without undermining morale and productivity. Best of all, it lets you hold onto your most experienced workers so they can share their knowledge with others, and provides a ready source of talent for when the economy recovers.
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