How to Retire Gradually

7 tips for phasing into retirement.

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Ken Bottoms is gradually easing into retirement. The 64-year-old senior vice president at First Horizon National Corporation in Memphis, Tenn. now works four and a half days each week, taking Friday afternoons off. In January, his balance of work and leisure will again shift to working four days a week, and eventually he will cut back to three days in the office. Bottoms tried full-time retirement for three months in 2004 before deciding it was not for him. "When I retired before, I just had too much time on my hands and I was anxious to get back to doing something," he says. "I wanted to not have that sudden drop-off this time and try to phase into things."

Retirement doesn't have to be all or nothing. Part-time retirement provides some cash but still gives seniors free time for hobbies and family responsibilities. Workers are becoming much more likely to partially retire before exiting the workforce completely. Among employees born between 1933 and 1937, 45 percent of men and 41 percent of women partially retired after age 50, compared with 33 percent and 25 percent, respectively, 20 years earlier, according to a recent Urban Institute analysis. Phased retirement can involve cutting back your hours at your current job, finding a part-time or consulting gig with a new employer, or even going to work for yourself. Here are seven tips for setting up a gradual retirement:

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Negotiate a new schedule. A few employers, including First Horizon National Corporation, have a formal phased retirement program that workers approaching retirement age can take advantage of. About 6 percent of companies have phased retirement programs that allow workers to reduce their schedule or responsibilities prior to full retirement, according to a Society for Human Resource Management member survey of 534 human resources professionals. Most other transitions to part-time retirement are ad-hoc arrangements. Talk with your supervisor about how your salary and responsibilities will change. "Emphasize that you would like to continue being a part of this organization but maybe working fewer hours or maybe a seasonal or part-time schedule," says Billy Wooten, executive director of program operations at Experience Works. "Offer to work in crunch times or busy times or times when you know the work load is heavy." Some companies may require a separation from the company before you can phase into part-time work.

Hattie Davis, 88, works two four-hour days each week as a nurse at Bon Secours Virginia Health System in Richmond. But she's traded in her former operating room position for lower-stress employee wellness duties. Davis retired briefly in 1984, but soon went back to work because she missed the social interaction of working. "I live alone because all my family is gone now," she says. "I like to be with people and there is no better place to do that than at the hospital."

Offer to mentor younger workers. Workers with long job tenures have valuable experience and institutional knowledge that they can pass on to younger workers. "Offer to be a coach or a mentor to the new person coming in," advises Wooten.

Settle on fair pay. Generally you will be paid less if you work fewer hours and have less responsibility. Discuss what your salary will be in your new role. You may be required to give up perks reserved for full-time employees, such as your office or parking spot.

Watch out for pension problems. Some pension payouts can be adversely impacted by phased retirement. Find out how your pension amount is calculated and make sure that your lower partial-retirement salary won't reduce your pension. If your pension will be reduced by cutting back to part-time work, you may want to consider keeping the higher pension from your current company and finding a part-time job with a different employer.

[Visit the U.S. News Retirement site for more planning ideas and advice.]

Qualify for health insurance. If you're younger than 65, you probably want to work enough hours to qualify for the company health insurance policy. Some companies will provide benefits to part-time workers. Find out what the minimum requirements are to qualify for health coverage and make sure you work enough hours each week to stay on the policy until you are old enough to qualify for Medicare.