How to Retire Gradually

Social Security withholding. You can work and claim Social Security benefits at the same time. But if you earn too much, some of your retirement benefits will be withheld. Workers between age 62 and their full retirement age (66 for workers born between 1943 and 1954) can earn up to $14,160 without penalty in 2010. Above that amount, 50 cents will be withheld from your benefit check for each dollar you earn. In the year you turn your full retirement age, you can earn up to $37,680, after which your check is reduced by 33 cents for each dollar earned. After your full retirement age, there is no additional penalty for working. And the withheld benefits aren't lost forever. When you reach your full retirement age, your Social Security check will be recalculated to a higher amount to give you credit for the withheld payments.

[See 10 Things You Didn't Know About Social Security.]

Decide what you'll do with your free time. Rose Sullivan, 90, retired for five years before returning to work in 1997. She now works 12 hours per week as the library director for the National Center for Appropriate Technology in Butte, Mont. "I can get my work hours in and still go and play bridge and go to scripture group and have my other life," she says. Sullivan uses her paychecks mostly for travel and has no plans to completely stop working. Says Sullivan: "My mother lived to 102, so I still maybe have a ways to go."

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