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It shouldn’t come as a surprise that different generations of American workers have different views of what an “ideal retirement” looks like. For years, the traditional picture involved stepping away from full-time work for good, relying on savings, investments, Social Security, pensions, and other income sources to support a lifestyle centered around leisure, hobbies, and personal freedom.
But Gen X and Millennials are beginning to rethink that model. As Aspen’s own Senior Wealth Advisor Jim Davis recently noted in a Newsweek article, more individuals are opting for a “phased” approach to retirement by gradually reducing work hours rather than stopping altogether. In fact, a growing number of those transitioning into retirement are choosing this path, maintaining some level of employment as they begin to draw on retirement income.
Employers are adapting as well. Many organizations, particularly in higher education and the federal government, have introduced formal phased retirement programs. These allow employees to shift to part-time schedules while beginning to access retirement benefits. Employers benefit too, as this approach creates opportunities for knowledge transfer, mentorship, and smoother workforce transitions.
What does “phased retirement” look like?
At its core, phased retirement is simply a gradual transition from full-time work into retirement. In some cases, this is structured through a formal program with defined timelines and reduced workload expectations. In others, it is more informal, often an agreement between the employee and employer to scale back hours or responsibilities while maintaining some level of income and benefits.
Phased retirement and benefit considerations
Benefits are often one of the most important considerations in a phased retirement strategy. Healthcare, in particular, deserves careful attention, especially for those stepping back from full-time work before becoming eligible for Medicare at age 65. Many individuals choose to maintain enough hours to remain eligible for employer-sponsored coverage. Others may need to bridge the gap using COBRA or private insurance. Pension eligibility and continued service credits can also play an important role, particularly for those in public-sector roles.
Does phased retirement affect Social Security benefits?
Social Security is another key piece of the puzzle. For those who reach full retirement age (FRA), which ranges from 66 to 67 depending on your birth year, continuing to work does not reduce your benefits. But if you claim early, the trade-offs are important to understand. Benefits can begin as early as age 62, but doing so results in a permanent reduction, generally around 25% to 30% lower than your FRA benefit, depending on your birth year.
In addition, if you continue working while claiming early, your benefits may be temporarily reduced by the earnings test. In 2026, you can earn up to $24,480 before reductions apply, after which benefits are reduced by $1 for every $2 earned above that limit. Once you reach FRA, the earnings test goes away, and your benefit is adjusted to account for prior reductions. On the other hand, delaying benefits beyond FRA increases your monthly payment by approximately 8% per year, up to age 70, making timing a key decision in a phased retirement strategy.
Financial planning and phased retirement
It’s clear that phased retirement involves more than simply working fewer hours. Timing Social Security, maintaining healthcare coverage, understanding pension implications, and coordinating withdrawals from savings and investments all play a role. If a significant portion of your retirement income will come from Social Security or pensions, it may make sense to delay the transition to maximize those benefits. On the other hand, if you have substantial savings, you may have more flexibility to begin drawing on those assets earlier while scaling back work.
A thoughtful, coordinated approach is what makes phased retirement work. Bringing together income sources, tax considerations, benefits, and long-term goals allows you to design a transition that supports both your financial security and your desired lifestyle.
Your Aspen advisor can serve as a valuable resource and guide as you think through these decisions. Using planning tools and current research, we can help you build a retirement strategy, phased or otherwise, that fits your specific situation. If you have questions or would like to explore what this could look like for you, we’d welcome the conversation.