Phased Retirement: Who Opts for It and Toward What End?

1. Introduction

The workforce of the United States is ageing and will continue to age, a development that is contrary to historical trends. The labour force participation rate for those aged 65-plus declined steadily from the 1950s to the 1980s, reaching 10.8% in 1985. Then, however, it increased to 12.8% in 2000. By 2015, more than 16% of those aged 65 and older are expected to be in the labour force (Toossi, 2002; 2004). The median age of the labour force increased from aged 34.6 in 1982 to 40 in 2002.
This increase in the labour force participation rate by older Americans may reflect more than a general trend of population ageing. Reasons for the higher participation of older people in the labour force may include financial need, higher educational attainment, improvements in health, reduced disability, changes in pension plans, more accommodating legal and economic environments for older workers, and changes from an industrial to an information-based economy.
In addition, older workers may in fact desire to remain in the workforce, regardless of their particular economic circumstances. Work may provide social and psychological benefits that retirement cannot, and some individuals may not value leisure as highly as they do employment.
A desire to keep working, however, may not equate to a wish to work full time. Some employees are able to modify their work schedules in some fashion in order to ‘phase down’ their career employment as they approach full retirement2. Workers who cannot engage in phased retirement with their current employer often ‘retire’ and then find part-time work with a different employer. Both types of arrangements are usually not formal or ‘part of’ broad-based programs, but studies have found some employer interest in implementing phased retirement arrangements in the future (Watson Wyatt Worldwide, 1999; Ehrenberg, 2001; Hutchens, 2003).
This study examines various aspects of phased retirement and extends the extant research on the work-retirement behavior of older employees in several ways. We consider several key issues of interest, including factors that are conducive to phased retirement for particular workers, the impact of phased retirement on the probability of becoming fully retired, and the financial effects of phased retirement on those who engage in it. We address these questions through the use of a large, longitudinal interview survey of older workers that takes into account employee attitudes towards work and leisure, as well as other variables such as demographic, family status, employment, and financial characteristics.

This article is taken from a publication of the AARP Public Policy Institute, an organization formed in 1985 as part of the Policy and Strategy Group at AARP. One of the missions of the Institute is to foster research and analysis on public policy issues of importance to mid-life and older Americans. This publication represents part of that effort. The views expressed herein are for information, debate, and discussion, and do not necessarily represent official policies of AARP,
Yung-Ping Chen, Ph.D., University of Massachusetts, Boston.
John C. Scott, J.D., MA, Cornell University.
2 Such arrangements have a variety of titles, including phased, partial, and gradual retirement. In some studies, ‘phased retirement’ refers to arrangements in which the employee gradually reduces work within a career job while ‘partial retirement’ has been used to refer to a reduction in work outside of a career job. We adopt these definitions in this report.

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