Phased retirement brings financial benefits

By Kimberly Lankford

Kiplinger’s Personal Finance

More older employees choose to reduce theirwork hours and phase into retirement. Even though they’ll take a cut in pay, a phased retirement has financial benefits.

Here are three of them.

Preservesretirementsavings: Even if you earnmuchless than you earned from full-timework, the extra money can help minimize the amount you withdrawfrom your retirement savings for a few years, leaving more money to growin your tax-advantaged accounts.

Continuing to contribute to your retirement savings can give you a leg up too. You may still qualify to contribute to your employer’s 401(k) and receive an employer match. And you can contribute to aRoth IRA provided you have earned income froma job. In 2024, people 50 and older can contribute up to $8,000 (or the amount you earned fromworking, if less).

Also, if you earned toomuchto contribute to aRoth in the past, youmay qualify after you partially retire.

Increaseslifetimeincomebydelaying Social Security: The extra income you earn fromworking part time can help you afford to postpone claiming Social Security benefits and could boost your monthly payout when you finally sign up.

Full retirement age is 66 for people born from1943 to 1954 and gradually increases, by two months for each birth year, until it reaches age 67 for people born in 1960 and later. Claiming benefits at age 62 rather than your full retirement age can reduce your annual benefits by asmuchas 30%, depending on the year youwere born.

Another good reason towait until at least full retirement age to apply for benefits: You can earn any amount without triggering the earnings test, which temporarily reduces benefits for thosewhohave earnings above a specific threshold.

If youwait past your full retirement age to claim benefits, your payouts get a boost. For each year you delay between full retirement age and age 70, your annual benefits will increase by 8%. "Not only is there a lot more of a benefit, but the annual cost-of-living adjustment is based on a higher base amount of benefit, so the growth of future benefits has a compounding effect," says Mitchell Freedman, aCPAand personal financial specialist inWestlakeVillage, California.

Gethealth insurancebeforeage65— at areasonableprice: If your employer lets part-timeworkers continue to receive health insurance benefits, taking advantage of that canmake a big difference in your finances if you stop full-timework before you’re eligible forMedicare. You may have to pay a higher premium than you did whenworking full time, but it’s often a better deal than getting your own coverage in your 60s.

If your employer doesn’t offer health insurance, you can get a policy in the Affordable CareAct marketplace at HealthCare.gov or your state exchange.

Because your income is likely lower than itwas when youwereworking full time, you may qualify for a significant subsidy to help with premiums.

DREAMSTIME