Sick of work but worried about retiring too early? Many older Americans are using a different way to retire — here's what it is and how to make it work for you

A different way to retire

Retiring early can pose many challenges. If you retire before age 59.5, you may be too young to withdraw from an IRA or 401(k) penalty-free. And if you retire prior to age 62, you're too young to claim Social Security benefits.

There’s also health coverage to consider. Medicare eligibility generally doesn't begin until age 65. Even if you retire at 62 — an age where both Social Security is available to you and can freely withdraw from IRA or 401(k) accounts — the cost of health insurance can set you back.

That’s why instead of a full-fledged early retirement you may want to consider a phased retirement if you’re feeling burned out on the job, or if you think you can no longer handle a full-time work schedule any longer.

A 2024 survey from Willis Towers Watson found that 34% of U.S. workers aged 50 and over have either started phasing into retirement (15%) by reducing their working hours or job responsibilities, or want to do so (19%). And a study commissioned by Fidelity found that across all generations, two-thirds of workers today are hoping for a phased retirement, where working hours gradually wind down before stopping completely.

The benefits of a phased retirement compared to an early retirement are multifold. First, there’s the financial upside of hanging onto a partial paycheck for longer. That could mean leaving your nest egg untapped for a few extra years or minimizing withdrawals from it.

A phased retirement could also mean working just enough hours to maintain employer health coverage until you’re old enough to enroll in Medicare.

Plus, while you’re allowed to claim Social Security benefits once you turn 62, failing to wait until full retirement age (67 for anyone born in 1960 or later) means facing a lifelong reduction in those monthly payments. A phased retirement could make it possible to hold off on Social Security a bit longer and lock in a larger monthly benefit for life.

A phased retirement could also make the transition out of work easier for you mentally and emotionally. Many retirees struggle to find a sense of purpose in life once their careers come to an end. By easing into retirement, you’ll have an opportunity to adjust to your new lifestyle and find meaningful ways to fill your days.

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Make a phased retirement work for you

There are a number of arrangements you can pursue to ease into retirement. First, you could ask your employer if it's possible to reduce your working hours gradually. If they're flexible, they might allow you to cut down to 30 hours a week for a period of time, then 20 hours a week, and then 10, until you're eventually phased out.

If that's not an option, you may be able to leave your job but maintain a freelance relationship with your employer. In this situation, you might lose your health benefits if you're paid as a contractor. But it might also allow you to work part-time and give you more flexibility in your schedule.

Also, you may be able to phase into retirement by accepting a job that's different from the one you're doing now. If you're an educator, for example, it may not be feasible to teach on a part-time basis. But instead, you could become a substitute, which may offer the flexibility of working a few days a week instead of having a dedicated classroom.

If your employer won't support a phased retirement at all, you could try starting your own business. For example, if you work full-time in marketing, you could leave your 40-hour-a-week job and find clients independently. The work may not be the most consistent, but you'd at least be doing something and generating some income.

Remember, too, that thanks to the gig economy, continuing to work in some capacity is possible at any age. An AARP study found that 27% of workers aged 40 and over are doing some type of freelance or gig work. And the gigs you choose could run the gamut from creative work, like writing or crafting, to work that gets you up and moving, like being a tour guide.