Ease into retirement (cont.)

@Money March 6, 2012: 10:41 AM ET

Understand that size matters. If you start easing up at work before you've built a plump-enough nest egg, you risk shortchanging yourself at full retirement, since you'll be relying mainly on compounding of what you've already saved to drive growth.

That same employee with the $100,000 salary, for instance, would be able to generate 60% of his annual working income upon retirement if he'd amassed a $750,000 nest egg by the time he went part-time, vs. 50% if instead he had only $500,000 socked away when he reduced his hours.

The good news: Switching to a less taxing schedule may allow you to work longer than you would have otherwise. Heatherton, for one, had originally planned to quit at 66, but found with her reduced schedule, she had no need to. And roughly a third of retirees say they too would have stayed at their jobs longer had a reduced schedule been available to them.

Working longer, in turn, can more than make up for modest savings to start because it gives your account more years to compound. That same employee who had $500,000 in his account when he shifted to a four-day week at age 60 would end up able to replace about 70% of his salary in retirement if he works until 70 -- about $10,000 more a year than someone who had $750,000 socked away at age 60 but quit the workforce for good when he turned 65.

Sell it up and sell it down

Once you've decided you're a viable candidate for phased retirement, it's up to you to make the case that the arrangement will work for your employer too. That means thinking through the idea from the company's point of view and working out the kinks before you make your pitch.

Tweak your job definition. Not every position lends itself to a reduced schedule. So think about ways you can redeploy your skills and experience that will benefit your boss too. Can you work on special projects? Focus exclusively on high-growth or problem areas of the business? Help develop younger workers?

Three years ago Steve Bolduc, an engineer at Stanley Consultants, an engineering consulting firm, was working 50 hours a week and most weekends when he decided to make a change he'd long thought about: "I wanted a more balanced life."

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With the okay from his managers, he changed his job description and began teaching colleagues how to take on some of his responsibilities. Now, rather than being the project manager, he is part of a team, which has allowed him to cut back to 22 hours a week: "I'm doing the same work that I love, but there's a lot less pressure."

Get buy-in from your boss. Put together an explicit plan (on paper) with a detailed description about the work arrangement you'd like, how your current duties would be covered, and how the company would benefit (or at least not fare worse). Then schedule a meeting with your manager to discuss it, anticipating and having answers to problems he or she may raise.

That's how Loren Week, 63, convinced his CEO to say yes to a less pressured role for him. One of the most senior salespeople at Custom Alarm, a security systems designer in Rochester, Minn., Week was tired of driving nearly 2,000 miles a month to meet with clients in his three-state territory.

In sales, "you can't cut back without hurting your relationship with customers," he says. So Week proposed that he could start to focus more on business development, slowly handing off accounts to younger colleagues. His direct manager was on board, but the CEO wasn't thrilled about losing a top salesperson. What turned him around: Week made a compelling case that business was being left on the table because no one was following up with longtime accounts to see whether they needed new services -- and that he was in the best position to do that because he had the longest relationship with them.

Find your own replacement. Ken Bottoms, the First Horizon compensation executive, said that lining up a strong successor made the transition to a shorter workweek smoother. "I trained someone and didn't leave till he was ready to take over," says Bottoms. The hardest part? "Getting in the way of my replacement," he says. "I had to force myself to butt out and let him make decisions that I used to make."

Navigate the benefits maze

Reducing your hours at work can cost you a bundle in terms of Social Security, health insurance, and other coverage if you're not careful.

Put Social Security off limits. Understand this from the outset: If you have to take Social Security early to pull off a phased retirement -- full retirement age ranges from 66 to 67 for anyone now younger than 65, depending on the year you were born -- this isn't the right plan for you. For one thing, you'll permanently reduce your monthly benefits by as much as 30%. And until you reach full retirement age, the benefits you do get will be reduced by $1 for every $2 you earn at work above a low threshold ($14,640). The limit rises to $38,880 at full retirement, and after that, the reductions stop.

Maintain your ability to save. If you're considered part-time or your hours fall below a certain number -- typically 1,000 hours a year or less than 20 hours a week -- some companies will eliminate matching contributions to your 401(k) plan or prevent you from participating altogether. Check with your HR department to find out your plan's restrictions and, if possible, keep your hours above the limits.

Or get creative. Bud Cusack, president of the West Coast division of Stiles Corp., a commercial real estate development company, began a phased-retirement plan last fall. Cusack, 67, retained the same title but cut his 40-hour work-week to 24 after handing off some duties.

He's careful, however, to spread his hours over five days so that he is considered full-time, which allows him to still contribute to his 401(k). "My wife and I have good savings, but my home equity isn't what we hoped it would be, and we lost money in the market," he says. "It was important to keep adding to my retirement savings."

Make sure you're still covered. Also check that you'll still be eligible for the company's health plan. While many organizations do provide medical benefits to staffers who go from full- to part-time, you may be charged more for premiums. Finishing your career as a part-timer can also reduce your pension. That's because benefits are usually calculated on your final average earnings and years of service.

Make it work long term

Okay, so your boss said yes. Now what? Many phased retirees warn the initial transition to a lesser role and lighter schedule can be bumpy.

Get your co-workers onboard. A change in your job probably means a change for your colleagues too. Once you get your manager's approval, talk to your colleagues to fill them in on the details of your new role and how it may affect them. Invite their input.

Send The Help Desk your retirement questions

Dave Stroz, 64, was one of the first people at Abbott Labs to do a phased retirement under a program called Freedom to Work, which allows near-retirees to reduce their hours while retaining full benefits. A laboratory manager with 30 years at the company, Stroz moved to a four-day-a-week schedule three years ago by giving some tasks and administrative work to younger colleagues. He sat down with them beforehand, assured them that they only needed to attend to urgent business that arose while he was out of the office, and made it clear that his co-workers had the option to say no to the extra work without repercussions. No one did, says Stroz, noting, "Most of them saw it as an opportunity to take on responsibilities that could help them move up at the company."

Lower your expectations ... As much as you may enjoy shedding some responsibilities, the emotional adjustment can be tricky. Sidney Leibovich, an engineering professor at Cornell University, began easing into retirement two years ago.

A former department chair, he now teaches just one semester a year and gave up administrative responsibilities. "Work has always been a big part of my life, and I don't want to give it up completely yet," says Leibovich, 72. Still, he is sometimes wistful for the days when he was a decision-maker: "Everyone knows you're on the way out, so they're not thinking of you for long-term projects."

... But don't become a drone. Just because you're working fewer hours, though, doesn't mean you can't still make a real contribution. For Kathy Frederick, that means putting her hand up for high-profile projects. One of her first was conducting a compensation study for Scripps. Now she's setting up corporate on-site wellness clinics for the hospital system.

She says it's sometimes hard to get her work done in the 16 hours she's being paid for. Still, Frederick says putting in a little extra time is a small price to pay for her current flexibility. "I'm not good at turning off my work, but I like that I feel valued," she says. "Working from my home in Monterey, walking my dog on the beach while I'm making phone calls for my job, it doesn't seem so much like work to me."

Do you know a Money Hero? MONEY magazine is celebrating people, both famous and unsung, who have done extraordinary work to improve others' financial well-being. To nominate your Money Hero, email heroes@moneymail.com.  To top of page

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