Are you feeling ready to retire, but question whether you’re financially ready? Or perhaps you need to reduce your work hours, but you don’t want to completely retire just yet. Federal government employees enjoy the option of a Phased Retirement for this very reason, and it could be a good choice for you.
There are many reasons someone might want to choose the Phased Retirement path. Your partner’s health could be failing, and they need you at home more often. Or maybe you want to retire, but you’re hesitant about living on a fixed income. A Phased Retirement can help you bridge that gap; instead of leaping directly into retirement, you undertake the process gradually and take time to adjust to your new budget.
Whatever your reason, you might be wondering how Phased Retirement works. In a nutshell, here it is: Your work hours are reduced by half, along with your salary. However, you also begin drawing part of your annuity. When you enter Phased Retirement, the annuity is calculated as if you are fully retired, but then divided by two. Your income is part salary, and part annuity.
During this time, your income will be less than your original full salary, but more than your anticipated annuity amount. It’s a good way to test the waters of retirement by gradually reducing your income and adjusting your lifestyle accordingly.
When you fully retire, your annuity will be recalculated according to your years of full-time service, plus your years of part-time service. And of course, you will also file for Social Security benefits when you reach the age of eligibility. If you have invested in a Thrift Savings Plan, you can also begin taking distributions, completing the third leg of your federal retirement program.
A Phased Retirement isn’t right for everyone, but it could be a good option for you. Give us a call to discuss your lifestyle and budget needs, and we can help you decide if this path could be the right one.
