Why Retire All at Once?

About 25 percent of the employees of Abbott Labs, the health-care company headquartered outside Chicago, are age 50 or older. But in just five years, the number could jump to more than 40 percent.

That demographic shift, happening everywhere, has companies scrambling to close the talent gap. At the same time, older workers are looking for a way to slow down without checking out or going broke. The answer to both challenges: phased retirement.

At Abbott, that means workers 55 or older with 10 years of service can scale back to four days a week or take up to five weeks of extra vacation. Or they can keep the same schedule but reduce their responsibilities -- for example, dropping out of management. Workers keep health, pension and 401(k) benefits as if they were still working full-time, but they can't collect their pension. Mentoring younger workers is part of the deal. "I'm taking baby steps toward retirement," says Al Dorfman, 57, an information-technology specialist at Abbott.

Other companies let workers cut their hours further and start collecting a pension to make up for the drop in pay. In most cases, pension and tax rules say you have to be 62 to collect pension money. Public Service Enterprise Group, a utility company, started a phased retirement program last January. Retirees can work up to three days a week and collect up to their full pension benefit.

After two years, they must retire completely. Expect more such programs. "Long term, they'll be the norm," says consultant Pierce Noble, of the Mercer Group.