What is phased retirement?

Phased retirement is a flexible approach where individuals gradually reduce their work hours or responsibilities over time, rather than abruptly stopping work. It allows for a smoother transition from full-time employment to complete retirement, often blending part-time work with leisure.

How much money do I need for a portfolio-supported sabbatical?

The amount needed for a portfolio-supported sabbatical depends entirely on your desired lifestyle and the duration of your break. You'll need enough in liquid savings and investments to cover all your living expenses, including housing, food, travel, and health insurance, for the entire sabbatical period. Many financial planners suggest having at least one to two years of living expenses saved, in addition to your long-term retirement funds.

Can I still contribute to my retirement accounts during phased retirement?

Yes, as long as you have earned income during your phased retirement, you can continue to contribute to retirement accounts like a 401(k) or IRA, up to the annual contribution limits. This can help boost your savings even as you reduce your work hours, taking advantage of tax benefits.

What are the tax implications of withdrawing from my portfolio for a sabbatical?

The tax implications depend on the type of account you withdraw from. Withdrawals from taxable brokerage accounts may incur capital gains taxes. Withdrawals from traditional IRAs or 401(k)s before age 59½ may be subject to income tax and a 10% early withdrawal penalty, unless an exception applies. Roth IRA contributions can be withdrawn tax-free and penalty-free at any time, while Roth earnings can be withdrawn tax-free and penalty-free if you are over 59½ and the account has been open for at least five years.

How does phased retirement affect my Social Security benefits?

Working during phased retirement can affect your Social Security benefits if you claim them before your Full Retirement Age (FRA). If your earnings exceed a certain limit (expected to be around $22,320 in 2026 for those under FRA), your benefits will be reduced. However, these withheld benefits are not lost; they are added back to your benefit amount once you reach FRA.

Is phased retirement only for older workers?

No, phased retirement can be adapted for individuals at various career stages. While often associated with pre-retirement, the principles of reducing work hours or taking sabbaticals can be applied earlier in one's career to achieve better work-life balance or pursue personal goals, funded by strategic savings.

How do I convince my employer to allow phased retirement?

To convince your employer, focus on the benefits to the company. Highlight how your continued, albeit reduced, presence can provide mentorship, retain institutional knowledge, ensure a smooth transition of responsibilities, and reduce recruitment costs. Present a clear plan outlining your proposed schedule, responsibilities, and how your work can still add value.

Phased Retirement & Sabbaticals: Your Flexible Path | One…