Older Workers Ask: Where's My Flexible Retirement?

Riddle me this: World populations are aging, labor forces are shrinking and government-run retirement programs are running short of cash, so why aren’t employers and politicians embracing flexible retirement for older workers?

“Many, if not most workers — especially those nearing retirement — envision retirement as a transition, something that happens over time,” says Catherine Collinson, president of Transamerica Center for Retirement Studies and executive director of the Aegon Center for Longevity and Retirement. “However, employment practices and government retirement benefits are not fully supportive of that. They haven’t kept up with the changing expectations and needs of workers.”

For proof of this disconnect, I direct you to Exhibit A: Collinson’s latest report, The New Flexible Retirement, based on surveys of 16,000 workers and retirees in 15 countries.

It found that 56 percent of workers (61 percent in the U.S.) envision a “flexible transition” to retirement. But only 27 percent of workers 55 and older (25 percent in the U.S.) said their employers offer the opportunity to shift from full-time to part-time working arrangements as they phase into retirement. And just nine percent of workers 55 and older say their employer offers retraining opportunities to help them phase into retirement.

Collinson said the Aegon report defined flexible retirement as including people who envision transitioning from full-time work to part-time work, or working in a different capacity, or working as long as they’re able. By contrast, phased retirement — a subset of this — means gradually reducing your work hours over time until you fully retire.

“When and how people retire is a very personal decision,” Collinson said, “and we need to think about tailoring it to their wants, needs and circumstances.”

In some countries, the survey found, the vast majority of older workers want to transition to retirement, but their chances are pretty dim.

For example, 71 percent of 55+ workers in India said they envision a flexible transition to retirement, while only 41 percent said their employers offer the opportunity.

What’s strange is that flexible retirement could be so beneficial for employers, governments and the public — if only more people were allowed to do it.

Carol Graham, a senior fellow at the Brookings Institution and professor of public policy at the University of Maryland, recently wrote a paper saying that “flexible retirement may be one solution to the challenges of unemployment, aging populations and public pension burdens.”

Using Gallup World Poll data on well-being, income, health, employment and other variables in more than 160 countries, Graham concluded that “voluntary part-time workers in Europe and the U.S. are happier, experience less stress and anger and are more satisfied with their jobs than other employees.” Also, she noted, “late-life workers have higher levels of well-being” than retirees and are more satisfied with their health.

Said Graham: “At a time when unemployment, workforce productivity and health problems related to an aging population present multifaceted challenges, exploring the potential contribution of flexible-work arrangements in meeting these challenges is a low-risk and potentially high pay-off proposition.”

So why do so few U.S. employers offer it? “Many employers, especially over the last eight years, have been so focused on recovering from the recession and staying sustainable and competitive, that some of their employment practices haven’t received the level of attention they deserve,” said Collinson.

Employers and governments in a few countries, however, do seem to get it.

Germany, Graham said, introduced a number of flexible work arrangements during the recent recession “and there is some evidence that these policies protected the labor market and even added jobs.”

The Aegon report also cited progressive policies in Australia and Japan.

Australia’s “Transition to Retirement” government-sponsored pension, for instance, is favorably taxed. It lets workers move from full-time to part-time work and complement their income with the pension. About 20 percent of Australian workers over 55 have participated in this program since it was introduced in 2005.

In Japan (which has one of the most rapidly aging populations), the Aegon study said “flexible retirement is more of a reality than an expectation or an aspiration.” One reason: since 2013, employers there have been required to choose one of three options for employees who reach 60 and their preferred one is the “continued employment system.” This lets firms offer flexible working arrangements on a yearly contract basis until the workers turn 65.

“It necessitates conversations between pre-retirees and employers that can be good for both sides,” said Collinson.

By contrast, she noted, one barrier to flexible retirement in the United States is a reluctance to have such talks.

“Employees don’t want to bring it up for fear of being marginalized if they have to change their plans, and employers don’t want to raise the possibility of a flexible retirement for fear of being perceived that they’re engaging in age discrimination,” said Collinson.

One recent government-backed foray into phased retirement in the United States hasn’t gone very well.

Congress passed a law in 2012 allowing federal workers to arrange phased retirements, and the program has the potential to reach 2.5 million government employees. But the Office of Personnel Management has only received 31 applications. Few government agencies have made the benefit available to their employees.

Jeff Neal, founder of the blog ChiefHRO.com, says phased retirement is looking more and more like “The New Coke” of Civil Service reform — “an idea that seemed great, but never found a market.”

Said Collinson: “That begs for a public dialogue on why it hasn’t taken off, so we can all learn from the experience.”

She’s optimistic that in coming years more U.S. employers will revise their HR policies to make flexible retirement an option — out of necessity.

“Many may be in denial about the aging of the population today,” Collinson said. “But at some point, a critical mass of baby boomers will want to retire.” And without offering flexible retirements, she added, “the alternative will be running the risk that their seasoned employees will retire on two weeks’ notice. That can prove very disruptive.”

If you’d like to arrange a personal flexible retirement plan at a workplace without a formal program in place, first weigh the pros and cons. A few potential drawbacks: Deciding to go the phased retirement route could reduce your pension and Social Security benefits and mean you’ll need to halt your 401(k) contributions.

Should you decide that you want some type of flexible retirement, take the initiative to discuss it with your manager — but be sure this is really the way you want to retire. Your boss likely won’t give you a chance to change your mind.

“Once the genie is out of the bottle, it can be very hard to put it back in,” Collinson noted.

Richard Eisenberg is the former Senior Web Editor of the Money & Security and Work & Purpose channels of Next Avenue and former Managing Editor for the site. He is the author of "How to Avoid a Mid-Life Financial Crisis" and has been a personal finance editor at Money, Yahoo, Good Housekeeping, and CBS MoneyWatch. Read More