The workforce in America is on the verge of significant change.
In 2025, more Americans will reach the age of 65 than ever before, a trend that will persist until 2027. As millions retire, it’s expected that employers will find it challenging to fill those positions with younger, less experienced individuals.
This issue largely stems from demographic shifts. Birth rates have been declining for almost two decades, resulting in a diminishing influx of young workers each year. By 2032, the U.S. is expected to encounter its greatest labor shortage to date.
While we can’t directly create more young workers, there’s still time for businesses to avert the looming talent crisis. This requires a change in how we view retirement, seeing it as a gradual transition instead of a sudden event.
This concept is known as “phased retirement.” At its simplest, it involves older employees gradually reducing their hours and responsibilities while also using their expertise to guide younger workers.
It’s crucial for employers to retain their skilled workforce. Currently, over 70% of U.S. employers claim they struggle to find adequately skilled candidates. Many recent graduates frequently lack essential soft skills like communication and leadership.
Keeping experienced employees engaged as mentors is a straightforward way for companies to cultivate these vital skills in newer teams.
Moreover, phased retirement assists organizations in dealing with upcoming workforce reductions by preventing talent loss and facilitating succession planning. It also helps maintain the organizational knowledge and relationships that are critical for business success.
But this approach isn’t only advantageous for companies; it also caters to older workers. Many of them are defying conventional retirement expectations, wishing to stay in the workforce for longer.
In fact, older Americans, those 65 and over, are nearly twice as likely to be employed now compared to the late 1980s.
Why is that? Some older adults aim for a more financially secure retirement by continuing to work. Others simply enjoy being part of the communities they work in.
Some newly retired individuals can find the abrupt shift from full-time work to complete leisure a bit jarring. They may want the freedom that retirement offers but hesitate to give up the structure, income, and social ties that bring meaning to their lives.
The choice to quit or continue working can shape many aspects of one’s life. Engaging in work, even part-time, can enhance mental well-being in later years. Gradual retirement has shown to help older adults maintain their energy levels and combat fatigue. Additionally, a study revealed that many individuals over 50 prioritize having a sense of purpose over feeling young.
In contrast, completely stepping back from work during retirement might hasten cognitive decline for some older Americans.
I’ve witnessed the positive effects of phased retirement through Abbott’s Freedom 2 Work program. Employees approaching retirement can opt to reduce their hours, contribute to 401(k) plans, and delay receiving Social Security while still earning an income.
Some individuals have used this additional time for travel or family, while others appreciate the chance to recharge before returning to work. For many, having this flexibility enables them to remain in the roles they love for a longer period.
Talent development isn’t just about training younger employees in necessary job skills. It’s also about ensuring that our most seasoned and experienced team members can continue to make valuable contributions for as long as they desire.
Organizations appear to be catching on. A growing number of HR executives, nearly 40%, report that their companies have some form of phased retirement plan, more than double the rate prior to the pandemic.
Phased retirement offers a way to balance the needs of both employees and employers, preserving expertise while allowing older workers the freedom to engage in meaningful work well into their later years.
