Phased retirement: A choice or necessity?

Over the past few years, retirement has been redefined for your aging clients.

Government funding requirements have continually shifted, and the days of leisurely retirements seem to be passé. For the new age of retirees, part-time work and “phased retirements” are now the norm.

But, is this change one of choice or need?

Read: How do you define retirement?

The 2012 Sun Life Canadian Unretirement Index Report found 48% of Canadian workers surveyed expect to have a phased retirement.

Also, a report from Fidelity Investments, called The shift to retirement income—beyond the headlines, indicates 66% of pre-retirees expect to work in retirement, with 51% saying they would work as an employee and 28% say they may start a new business.

The era of people working for the same company for 30 years and then retiring with a DB pension plan are over.

So, as life spans increase and DC plans take over, changes to retirement are needed. “The biggest risk Canadians have is outliving their savings. Fifty years ago the biggest risk Canadians had was dying too young,” says Tom Reid, senior vice-president, retirement services with Sun Life Financial.

Read: Canadians will work post-retirement

The need

Various industry studies in recent years have found a significant number of employees in their 50s are not meeting their retirement goals.

A survey from the Canadian Payroll Association finds 46% of respondents put 5% or less of their pay into retirement savings. Financial planning experts generally recommend a retirement savings rate of 10% of net pay.

Read: Canadians aren’t saving enough

When asked how close they are to their retirement goal, 73% of respondents said they have saved less than their goal. Of those 50 and older, 45% report that they are less than a quarter of the way there.

Peter Drake, vice-president of retirement and economic research with Fidelity Investments Canada ULC, says, “One of the hardest parts is to envision what your retirement is going to be. If you know what you want to do in retirement, than it will be easier for you to figure out how to pay for it.” He adds, “Working in retirement isn’t a retirement plan.”

He says plan sponsors have been doing more to help educate and engage their employees, but there is still work to be done. “There’s more talk of retirement and more awareness of financial issues, but I don’t think there’s been nearly as big a change in financial literacy,” he says.

Read: Offer financial planning services to employees

The want

A large number of retirees are remaining in the workforce out of desire.

Only 30% of respondents to the Sun Life survey said they expect to be fully retired by the age of 66, while 55% expect to still be working until age 71. Of employees who expect to still be working, 39% said it would be because they want to stay in the workforce.

The Fidelity report says the need to stay mentally/physically active and also pass time/keep busy were the two main reasons for people opting to phase in their retirement.

Read: Retirement planning reloaded

And the impact on employers will be great; Reid says a growing number of employers are realizing their employees’ desire to keep working into their retirement years can benefit their organization.

“More and more, we are in a knowledge-based economy, and when someone retires, that’s a lot of institutional knowledge that walks out the door. In an effort to retain that knowledge, people are being progressive. There is also a need for employers to retain talent longer,” says Reid.

Read: One advisor’s succession plan

The University of Waterloo, for example, has implemented a policy allowing staff to reduce their workload and phase into retirement. “The intent is for employees to gradually move into retirement and for departments to save some costs in economically difficult times and still maintain business,” explains Alfrieda Swainston, manager, salary administration, human resources, with the University of Waterloo.

One thing’s for certain: no matter what people envision for their retirement or when they decide to move away from full-time work, “[For pre-retirees and future generations] the retirement of their parents or their grandparents won’t be their experience.”

This article originally appeared on benefitscanada.com.