Ready for retirement?
A little more than two years ago, Olympia, Wash.’s City Manager Dick Cushing was eligible for retirement and ready for a change. Not yet 60 years old and accustomed to the stimulation of a challenging career, he did not want to stop working entirely, even after more than 30 years in the Washington State Retirement System. Although he left his city manager position, Cushing is teaching at a local college and working part-time as an executive recruiter from home. Cushing is like many of his fellow Baby Boomers, transitioning to full-time retirement on his own terms.
On the other side of Washington’s Cascade Mountains, Bob Nolan retired early as chief financial officer for Kennewick, Wash. But barely a month after he left his job in July 2002, he was surprised to get a call from his former boss: he was needed back at city hall. A year earlier, he could not have returned, but Washington’s public retirement laws now accommodate such retire-and-rehire arrangements. After working in Kennewick for another year, Nolan retired again but has since filled several temporary jobs, including six months as city administrator while the incumbent was on assignment in Iraq.
The majority of today’s workers are redefining retirement, with many of them seeing it as a series of new challenges. Often, they are following the path pursued by Cushing and Nolan: phased retirement. Retirement phasers transition to full retirement gradually, moving into jobs with perhaps fewer hours, more flexibility, less responsibility and lower stress. While some phasers would like to begin cutting back before formal retirement, many will take an extended break from employment before returning to a job. Some are starting small businesses, teaching or working in public service.
As many as 80 percent of the Boomer generation intends to work after age 65, according to a 2001 American Association of Retired Person’s (AARP) report. Many of those eligible for retirement will work longer for financial reasons, such as adding money to their Social Security account or for the employer’s health care benefits.
Those who work after retirement can continue tax-deferred retirement savings, adding time for existing retirement savings to grow. Phased retirement means more time, and income, to pay debt before full retirement. Working longer, even part time, especially helps employees who started late preparing for retirement.
The experience shortage
Over the next 15 years, employers will face huge numbers of their most experienced workers retiring. Three years ago, the Washington-based International City/County Management Association reported that 72 percent of local government top managers were age 46 or older, with many nearing retirement age. The oldest of the 76 million Boomer generation turns 60 this year.
Some local governments already have seen skill shortages as veteran computer programmers, police officers, firefighters, teachers, managers and technicians retire. For example, between 2004 and 2005, 740 Houston police officers retired. Unable to find that many replacements quickly, last December Police Chief Harold Hurtt proposed temporarily bringing back retired officers to ease the shortage.
Public retirement systems are processing retirement requests at record levels. The Massachusetts Public Employee Retirement Administration Commission reported a 29 percent increase in teacher retirements between 2001 and 2005.
Although some state and local governments are creating programs to encourage early retirement, the longer-term workforce outlook requires incentives for experienced workers to remain on the job.
What, me retire?
The AARP report shows that many Boomers expect to work during their retirement years, and two-thirds of today’s workers age 50 or over hope to phase into retirement, according to a 2004 study from Washington-based Watson Wyatt Worldwide. The study also says those older employees will be looking for flexible work schedules, will work part time or will move in and out of employment. Of those who expect to work after retirement, 63 percent of surveyed employees say they would like to work part time, and 48 percent want flexible hours. Only 20 percent report that they do not intend to retire at all.
Even if they work after age 65, two-thirds of surveyed employees do not expect to work at the job they will retire from, although most would prefer to stay with their present employer. Not many, however, expect to have that opportunity because few think their current employer will offer that flexibility.
According to the Bureau of Labor Statistics, on average, local government employees tend to be younger than private sector workers when they retire, so more of them would be eligible for phased retirement. That could bode well for future generations of employers because the respondents to the AARP survey who will be eligible to retire the earliest also are more likely to continue some employment.
Nevertheless, most people who work after they could retire report doing so mainly for the enjoyment of the work itself. Whatever their motivations, mature workers will be available to employers who can meet the needs of retirement phasers.
In contrast to phasing retirement, contracting with retired workers, especially for technical work, is a customary way for employers to tap their experience. While contracts can be written too rigidly, the contracted employee may have some flexibility over when, where and how to work. However, contract workers typically do not have benefits.
The concept of flexible work schedules is appealing to retired workers, and employers are beginning to accommodate that demand. In fact, more of today’s employees can vary their work hours, according to the Bureau of Labor Statistics.
The move toward schedule flexibility includes more job sharing and part-time work options. The number of jobs where two or more part-timers share one full-time position are increasing. Some local governments allow flexible scheduling, such as Mesa, Ariz., which also encourages telecommuting and job sharing.
In many cases, managers can simply respond to individual circumstances, such as allowing a senior employee to reduce hours or to work from home. Employees also can work part time or share a job when they have to care for someone at home. Job sharing can be extended to retirement phasers and gives the employer two experienced workers to help cover busy times.
Australian law also encourages flexible arrangements. Workers, including retirement phasers, can purchase additional annual leave, paid for by adjusting their annual salary. Employers in the United States also can grant a request for leave without pay from employees who are beginning their transition.
Allowing retiring employees to telecommute is another option to phased retirement. Because much of the administrative and technical work of modern local government can be accomplished by employees working at home, telecommuting is a job strategy where the desires of retirement phasers fit squarely with the needs of employers. Arizona, for example, encourages telecommuting because it “offers a more productive working environment with fewer distractions that results in better job performance, improved employee morale and job satisfaction, reduced absenteeism and sick leave usage.” State officials also believe that telecommuting can help keep employees longer and help recruit new workers.
Retirement policy changes
Because a retiree may not want to work for a government whose pension system requires five years to be vested, or where health and other benefits are not available, flexible work arrangements will require altering policy. Labor agreements may need to accommodate such arrangements, too.
To help keep experienced workers, some public systems use Deferred Retirement Option Plans (DROP), where employees can retire from the pension system but continue working at the same job. With DROP, pension payments are deposited into employee investment accounts, building retirement funds to supplement pensions. Cities and counties have used DROP to encourage police officers, firefighters and other critical public employees who are eligible for retirement to remain on the job longer.
While DROP programs are used as incentives to continue full-time work for a period after retirement eligibility, retire-and-rehire programs foster more flexible work arrangements. For example, Ohio, Florida, Washington, Louisiana, Mississippi and Texas have modified their public retirement laws to create retire-and-rehire programs that accommodate phased retirement. With those programs, retired employees get their retirement checks and can be rehired by the same agency, perhaps for a limited time or a special assignment.
Even where workers can gradually retire or be rehired after retirement, organizations must begin to value mature workers and seek ways to accommodate flexible arrangements. At the same time, employees need to be comfortable exploring their own phasing strategies with their managers. Frank and open discussions of those subjects help employees plan their futures and the employers create succession and staffing strategies.
As more members of the Boomer generation become eligible for retirement, employers inevitably will recognize the need to retain or attract experienced and mature workers. Flexible work arrangements that meet the needs of employers and retirement phasers will become standard practices. Eliminating policy, legal and cultural obstacles to hiring mature workers and expanding opportunities for phased retirement is common-sense policy.
Gordon Tiffany is director of financial and retirement education for ICMA-RC in Washington.