You may have heard the statistic that 10,000 Baby Boomers retire every day. Today’s businesses, including banks, face many challenges as their most tenured employees exit the workforce in droves. One tool in HR leaders’ belts is phased retirement, whether formal or informal.
People are working longer. The U.S. Bureau of Labor Statistics projects by 2024 the workforce will include about 41 million people age 55+, with roughly 13 million of those expected to be over the age of 65. Additionally, BLS expects the two fastest-growing age groups in the labor force to be people aged 65-74 and those age 75+.
Some of this workforce longevity is driven by economic need—Americans are notoriously bad at saving for retirement—but also by the fact that we’re living longer, staying healthier, and many people simply enjoy their work.
At some point, however, most of us decide it’s time to hang it up. One strategy for smoothing the transition from full-time to retired is through a phased retirement program. These programs/policies create a framework for employees to gradually exit their role within the organization, often through reducing hours, training a replacement, and/or shifting to less-demanding work. They may also take the form of shifting from full-time to seasonal work or ad hoc in-house consulting.
In banking, perhaps the most visible form of phased retirement is executives who exit day-to-day leadership but remain on the institution’s Board of Directors. But, bankers at many levels could benefit from phased retirement. A commercial lender, for example, could take 6-12 months to hand off clients to his or her successor, or a compliance officer could train a replacement for 12-18 months to provide guidance during all annual and quarterly duties.
This type of structured, gradual transition from full-time work to retirement provides many benefits for both the employee and the organization. For older workers, retaining health insurance for an additional six or 12 months reduces the stress of leaving the workforce. In addition, a phased retirement can help alleviate some of the negative psychological dynamics of retirement. Especially for high achievers, our self-identity is often strongly tied to our work, and “losing” that can be destabilizing and difficult. For businesses, keeping seasoned staff on board in some capacity helps transfer institutional knowledge to the next generation of workers. It also allows space to promote younger star performers sooner and provide mentorship to help retain top talent.
However, despite the many benefits for both the organization and its employees, many companies do not have a formal phased retirement program in place. A 2018 survey by Willis Towers Watson found that, despite 83% of respondents ranking “transfer of knowledge within the organization” as a top concern related to employee retirements, just 10% offered a formal phased retirement program.
There are significant challenges to consider before implementing a phased retirement program. One is how the bank’s pension or 401k is structured. If benefits are dependent upon hours worked, a phased retirement plan may essentially require participating employees to quit, begin receiving benefits, and then be re-hired as an independent contractor or part-time employees.
Another challenge is Social Security. Since benefits are calculated based on income, a long (multi-year) phased retirement that reduces the employee’s wages significantly could be extremely detrimental to the Social Security benefits the employee receives when they reach full retirement.
Formal phased retirement programs must be structured in a way to overcome these and other regulatory hurdles. Despite compliance challenges, formal phased retirement programs can be very diverse in structure and implementation. A few examples from a 2017 Government Accountability Office report are below:
Example program structures:
- Employees who are at least 55 years old with 10 or more years of service to the company may voluntarily cut their hours by 20% with a corresponding 20% cut in pay while retaining health insurance and pension/retirement accrual benefits.
- Employees aged 60 and older with five years of service may voluntarily reduce their hours by 20%-50% without loss of health insurance benefits.
- Employees aged 55 and older with seven years of service may negotiate a “glide path” to retirement, gradually scaling from full-time to full retirement while retaining benefits.
- Employees may switch to less stressful or complex duties or phase to part-time work while retaining health insurance if they continue working at least 25 hours per week.
Whether the program is formal or informal, the objective is to provide flexibility for employees on the cusp of retirement. This allows the bank to retain seasoned employees and effectively transfer their wealth of knowledge to other staff while promoting an emotionally healthy exit from the workforce for older workers.
Seitz is WBA operations manger and senior writer.