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Retirement Planning > Retirement Investing

When Boomers Want Help With Phased Retirement

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A man in his late 40s wanted to retire from his regular job but still work, recalls his advisor, Heather Evans, a Vienna, Va., financial advisor for Merrill Lynch.

What happened next points up a trend that advisors are increasingly seeing today.

The boomer left the current job, took a year off and then went into private practice. This entailed moving the entire family to another state with a lower cost of living and scaling back in other ways. In return, he gained increased happiness, less stress and more enjoyment of life, says Evans.

How can advisors respond to clients who want to do phased retirements like this or, in what appears to be an increasingly popular option, phasing with the existing employer?

The process is not standardized, Evans says. As a result, “the new retirement,” as this period of work/life is increasingly being called, is often done on an informal, negotiated basis, she says.

That is, the boomer does the arranging. If phasing involves the current employer, it is an individual plan reached by agreement.

Still, what the advisor does, or doesn’t do, to facilitate the transition can make a big difference in outcome, say experts.

Much of the time, the advisor’s role is in the area of guidance and advice. “Some clients just don’t know what other people are doing about this,” observes Evans.

Because of that, she often points to available choices or approaches taken by others. That triggers the “a-ha element,” she says. They’ll hear what others have done, and then say “oh, I could do that.”

The approach chosen varies by skill set. For instance, the man cited above is a highly skilled executive, so he has greater flexibility and options than people with less experience and expertise, says Evans. However, many midlevel boomers want, and do, some sort of phasing, too, often with the current employer.

Employer involvement in phased retirement seems to be uneven, however.

Employers do recognize employees’ desire to work in retirement, points out a new survey, the “Merrill Lynch New Retirement Study” conducted in late 2005 by Harris Interactive. In fact, of the 1,000 U.S. companies polled, 24% said they are preparing for the coming “boomer outflow” from full-time work. (The polled companies have 100+ employees.)

The work options offered by firms that Merrill calls the “pioneers” include telecommuting, flexible hours, cycling (going in and out of retirement), consulting and setting up small businesses.

However, 31% of polled firms said they haven’t given boomer outflow much thought, and 40% believe preparing for this is not an important priority at the human resource or senior management levels. The loss of highly skilled professionals is more of a concern to employers (36%) than, say, the loss of middle managers (24%) or rank and file employees (21%).

Only 44% of firms said they offer any kind of flex- or part-time opportunities that would foster pre-retiree transition to other careers. Just 24% offer coaching or mentoring to help retain older workers.

This comes at a time when, as Evans puts it, “what is needed is flexible semi-retirement, not just flexible schedules.”

The Merrill survey points up a key reason for this need: As many as 71% of the 5,111 adults who were polled said their “ideal retirement” entails not planning ever to stop working completely. Those who expect to work in retirement projected their average “retirement career” would last 9+ years. The average age at which they plan to stop working completely is over 70.

So, it is clear that a lot of people are planning to work in retirement. This poses the question: If relatively few employers are ready for the boomer outflow or phased retirement solutions, how will boomers achieve their “retirement career” goals?

That’s where the financial advisor comes in, say experts.

“Every day, we see boomers who want to phase into retirement,” notes Timothy E. Cox, CEO of Central Financial Services Inc., Lincoln, Neb. In response, when Cox’s agency conducts financial planning courses at the worksite, the advisors include phased retirement among the topics covered.

Offered through the Business College of University of Nebraska, the college-level courses are educational classes shaped for workers from differing backgrounds. There is no sales or individual counseling involved. But employees can get personal advice if they also sign up for the free one-hour question-and-answer session that follows each course.

What Cox finds in those sessions is that “many boomers don’t want to quit work entirely. They want some sort of job to go to–for money, stimulation, enjoyment. They want to ‘stay on.’”

So, he starts the income planning process by “being sure there is adequate income for retirement.” But he also incorporates what the pre-retiree wants to do in retirement.

Whether someone can phase their retirement “depends a lot on the company and whether it allows people to stay on past retirement age,” says Cox.

For example, most closely-held family businesses don’t even talk about phasing, says Marvin Feldman, a partner in The Feldman Agency, East Liverpool, Ohio. Most such firms don’t have mandatory retirement, so “staying on” happens by choice, he explains.

In fact, he says, owners of some of these firms “actually get mad if someone they want to keep decides to retire.” They may be matriarchs and patriarchs in their 80s and 90s who are still working themselves and so “can’t understand why someone else wouldn’t want to keep working, too.”

But at larger firms, if a boomer has certain expertise, the company may allow phasing, says Cox. Often, the firm will set up consulting arrangements with boomers rather than part-time work (which may entitle workers to certain benefits, depending on hours worked).

Employers are moving cautiously in this area, points out Moira Moldenhauer, co-owner of Moldenhauer Advisor Services, Buffalo, N.Y. “They do not want to overstep their bounds” regarding government laws and regulations, she explains. “They also want to learn what workers really want to do in this area.”

Advisors typically do not interact directly with the employer concerning an individual employee’s bid to phase, stress Evans, Cox and Moldenhauer. Most employers won’t talk to an employee’s financial advisor, anyhow, they say.

Many employers do allow employees to “stay on” into their 70s, Cox notes. But since “phased retirement is not an employee benefit,” the arrangements do need to be handled informally.

But advisors can and do facilitate the process, say professionals.

For instance, Evans says she often reviews the employee’s benefit plan documents or the ‘package’ the employer has offered. Sometimes, she’ll do a conference call with employee and employer, too.

Cox educates employees on phasing and how to approach the employer about it.

Moldenhauer is beta testing a program right now that involves having licensed advisors educate employees on their qualified plan, pension options, and other retirement tools and topics.

She likens this to advisors coming into the employer to handle the group and voluntary benefits programs. “The only difference is, the (retirement) advisor and employee may end up establishing a life-long relationship,” she says. And, she says, employers who are facing the coming “brain drain” can get good advice from the advisor on how to make phased retirement happen in a way that “keeps everybody whole” and helps the employer with its work.

All three advisors include the phasing discussion into the broader income and retirement planning discussion.

“Maybe we’ll need new legislation regarding employee benefits” before phased retirement can become standardized, suggests Evans. Firms will need assurance that their arrangements have no real or perceived discrimination, she says.

Meantime, advisors should focus on developing individual financial plans for retiring workers, says Moldenhauer. “Advisors should help employees measure retirement needs and opportunities, and educate them on how to go to the employer to discuss phasing,” she says. “It’s education, education, education.”

The phased plan “should not be static,” says Evans. It should factor in a range of retirement scenarios.

Cox agrees. The worker may negotiate a phased agreement with the employer, “but things change, companies change, and health changes. The (phased) worker could be let go unexpectedly.” Therefore, he says, the plan may need periodic adjustment. “The planner has to be ready to help.”



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