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Phased retirement: Retaining skilled employees during a severe labor shortage

Jun 30, 2019

The U.S. is experiencing a significant labor shortage this decade, and it won’t end anytime soon. Although the worst is yet to come in 2025, as you can see in the chart below, 2019 isn’t leaps and bounds better. Baby boomers are reaching retirement age at a rate of 10,000 people per day, and there just isn’t the population to fully replace them.

Phased Retirement 

Source: TIP Strategies; U.S. Bureau of Labor Statistics; U.S. Census Bureau

So when you think about the percentage of employees you have who may retire over the next several years, can you really afford to lose them? How easy has it been over the past few years to replace those who have already retired?

Phased retirement will be one significant solution to help combat the sheer amount of skills and knowledge leaving the workforce. But you may be thinking, why haven’t more employers implemented this strategy?

The case for retaining older employees

There are several common concerns about older workers that create bias within employers. According to SHRM, many believe employees over age 50 cost too much money in salary and benefits, are difficult to manage and retrain, can’t handle the demands of a full-time job, and create greater risk of employment discrimination claims. Besides the fact that these are largely untrue, it’s this persistent way of thinking that sabotages employers and prevents them from retaining talent in the face of “record low unemployment, restricted immigration and an aging workforce.”

Because it’s getting harder and harder to hire — and even retain — talented people, you can’t rely on simply replacing your older workers and getting the same level of knowledge and experience in return. While there is a lot of poaching going on now (especially in industries like construction and nursing that require specialized skills), that isn’t a viable long-term strategy. Taking steps to ensure older employees pass on their knowledge and skills to younger employees is crucial to the overall success and longevity of your business.

Of course, starting the conversation around retirement isn’t easy, especially because you have to be sensitive to concerns around ageism. One way to combat ageism is by making it a part of every employee’s evaluation, regardless of age, to ask them about their long-term goals and who would be able to fill their role if they experienced a life-changing event. This covers not only retirement but also events such as a serious illness; a move to another city, state or country; and even a big lottery win. Plus, discussing long-term goals is a best practice for every employee, but it can be especially helpful in beginning the conversation around a potential retirement and, subsequently, if the employee would be interested in phased retirement.

The importance of stay interviews

Another good idea is to conduct stay interviews. This is where an employee’s direct manager sits down with them at least once a year, outside the evaluation period, to ask why the employee has stayed with the company, what concerns they have and what the manager can do to help the employee continue to stay. It’s an incredible retention tool that builds trust between managers and their direct reports.

Stay interviews have a lot to do with phased retirement because in order to implement such a program, you have to not only understand your own business goals for implementing the program but also be an organization that people want to stay and work at. If employees have consistently left just when they reach retirement age, that could be indicative of something serious in your culture or management team that needs to be addressed.

This is especially true if you know you have ROAD (retired on active duty) employees who are doing as little as possible without getting fired until they reach retirement age. A business that encourages employees to create clear and measurable goals and enforces accountability has far fewer ROAD employees than a business where employees have realized through a lack of accountability that reaching their goals doesn’t matter.

Phased retirement and alternative work arrangements

We’ve covered the reason for retaining older workers, potentially past retirement age, and how to broach the subject and increase retention. But what exactly is phased retirement?

Phased retirement is a transition period where a worker reduces the number of hours they work until full retirement. Whether or not you create a formal program or implement phased transition informally, make sure you address:

  • The transition’s time period (usually at least a year or two)
  • Scheduling expectations
  • Compensation: salary versus hourly
  • Employee benefits (especially health insurance and retirement plan contributions)
  • Concerns around ageism (as discussed above)
  • Employees who may want to stay into their 60s or more and not feel pushed into retirement

You may also want to address expectations for mentorship and knowledge transfer. Losing the skills and experience of baby boomers has been adversely affecting employers, who are quickly discovering there isn’t anyone suitable to take over for the retiring person.

With everything that goes into phased retirement, there are understandably many ways to accomplish it through a combination of location and flexible hours.

An employee in phased retirement could come into the office on certain days of the week and not work on the other days. They could work from home every day but for limited hours. They could even work full-time for two weeks and then be off for two weeks, job sharing their responsibilities with another employee who is transitioning to retirement or an employee they’re mentoring to take over their responsibilities upon full retirement (which helps ensure the successful transfer of knowledge within your organization). Phased retirement is about flexibility, and at the end of the day, you get to set your organization up for future success even amid a worsening labor shortage.

Getting started

Interested in setting up a phased retirement program? Contact the HR and organizational performance consultants at Wipfli to design a program around your business’s goals.


Deborah S. Marshall
Senior Manager
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