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Phased Retirement Contains Pros, Cons

Reducing pay could also hurt defined-contributions savings vehicles. Why? Well, once you take a cut in pay, you might not be able to afford future contributions to your 401(k) or IRA.

If you find you can't afford to take the plunge, don't fret. There are other ways to reduce work-related stress without reducing hours. You could, for example, work from home a few days a week, said Mitch Anthony, the Rochester, Minn., author of "The New Retirementality."

You might also consider renegotiating responsibilities to do "less of things you hate and more of the things you love," Anthony said.

Remember that the purpose of phased retirement is to provide "a pressure valve for people," Anthony said. There are many ways to do that without cutting back hours.

Knowing the alternatives will also be important if your employer isn't amenable to reducing your hours.

Just 16 percent of employers offer an official phased retirement, the majority of which are universities and other education institutions, according to data from Watson Wyatt.

When approaching your employer, try to avoid the words "phased retirement" unless the employer has an official phased-retirement program, said Steve Vernon, retirement specialist for Watson Wyatt and author of "Live Long and Prosper!," a book about phasing into retirement.

The better approach would be to ask if you can move to a part-time work schedule, he added.

Try to use phased retirement as an opportunity to get adjusted to retirement. That means getting accustomed to cutting back spending, reducing stress and improving your health.

The best way to learn to live on less is to limit yourself to your reduced income and not tap into your retirement savings accounts, like a pension or 401(k), until you fully retire, said Vernon.

If you're working three or four days a week, you may be receiving 60 percent or 80 percent of your former salary. But once you retire, your income could be halved.

Phased retirement will also give you the time to improve health habits, which could help reduce health-care costs down the road.

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© 2004 The Associated Press