Experts who have been watching the baby boom generation inch its way toward retirement have been voicing alarm recently that many of these happy-go-lucky spendthrifts are not going to have enough income to retire.
Now there's some good news, of sorts, for these folks: An increasing number of employers don't want them to retire, at least not all at once.
Confronted with a booming economy and a growing worker shortage, many companies are turning to phased-retirement programs to allow current employees to move slowly into retirement, rather than leaping into it cold turkey.
The programs, which come in a wide variety, include allowing older workers to downshift into shorter days or shorter weeks, to leave and come back as consultants, to work part time or as temporaries, or to work on a seasonal basis.
According to a new study by the big benefits consulting firm Watson Wyatt Worldwide, 16 percent of larger companies already offer phased retirement in some form, and another 28 percent show a moderate to high level of interest in offering it in the next two to three years.
The key reason, of course, is the firms' desire to retain skilled workers, but companies also say it helps them and workers to enable workers to retire gradually. And a smaller number of companies find it useful in training new workers.
The trend is likely to be very welcome among workers.
"We have been recommending a phased retirement process to our clients for a long time," said Elissa Buie of the Financial Planning Group Inc. in Falls Church.
Financially, the process can allow a worker to postpone the time when he or she has to start drawing down retirement savings. This both gives the nest egg more time to grow--a real benefit for those who started saving late--and reduces the number of years the worker will be dependent upon it.
"You may not be saving" during a phased retirement, "but at least you're doing something that covers expenses," Buie said.
The shift will take skill on the parts of both the worker and the company, she noted. "If you put someone in a position where they're doing the same job but making less, that's no good," but if "it gives you the ability to take a job that really would be okay or good if it weren't so darn taxing, that's great."
Experts agree that corporations face challenges in getting the programs to work well for both themselves and their employees. So far, more than half the employers surveyed by Watson Wyatt reported that fewer than 5 percent of eligible workers were participating in phased retirement plans, even though other studies show a strong preference among older workers for gradual retirement.
Deciding which workers will be eligible for a phased-retirement program may be difficult for some companies. Offering the opportunity to some workers and not to others is cumbersome and can hurt morale as well as risk discrimination charges, said Valerie Paganelli of Watson Wyatt. Poor communication and education, on the other hand, can result in too few workers taking advantage of the program.
The Watson Wyatt study also said that integrating the program into existing benefit plans is also complicated. Tax rules bar employees from receiving pension distributions before they reach a pension plan's normal retirement age, making it difficult for a worker who wants to retire gradually to use reduced pension payments to augment reduced pay.
In addition, some pension plan benefits rise rapidly in later years, encouraging workers to remain on the job to maximize their pension benefits, something that may be a factor at companies with low participation rates.
Meshing other benefits with phased retirement is also an issue. Whether to keep partly retired workers covered by health and disability insurance is one question. Whether to allow those under 59 1/2 to take loans from their 401(k) savings plan is another.
"Even with these challenges, we expect phased retirement programs to grow in popularity," Paganelli said. "It will not be surprising if at least half of all employers have such programs in place within a decade."
Already, the study said, 61 percent of companies report difficulty attracting workers, and 70 percent believe they will be having that trouble within five years.
By 2006, 44 percent of the U.S work force will be age 45 or older, up from 32 percent in 1996, with a corresponding shrinkage in the proportion of younger workers. Immigration may ease the crunch a bit, but many companies will find themselves in fierce competition for skilled people.
Keeping older workers around longer may be one of employers' best weapons in this fight.
Paganelli noted that many workers already do a sort of do-it-yourself phased retirement by retiring from one company and going to work part time somewhere else.
When this happens, the skill and sometimes entrepreneurial spirit of these workers goes to benefit someone other than their original employer.
"Employers need to look with more creativity at the migration of people within their own organization," she said. Many companies are big enough to offer new opportunities to older workers, which could keep them from leaving.
"Rather than lose those resources, rechannel them," she said.
Edging into Retirement
Over the next few years, there is expected to be a shrinking supply of work force entrants while the number of older workers increases . . .
Percentage of work force
By age group
55+ 16% 12%
45-54 24% 20%
35-44 24% 27%
25-34 21% 25%
Under 15% 16%
. . . which has led many employers to consider offering phased retirement.
Of those that do, here are some arrangements.
Phased-retirement program arrangements
By percentage of employers
Retirees as part-time/temps 75%
Reduced workdays/ workweek 60%
Hire retirees as consultants 42%
Job transfer 32%
Extended leaves of absence 23%
Job sharing 19%
Alternative career paths 8%
SOURCE: Watson Wyatt