The New "Staged" Retirement

By Daniel Kadlec

Financial planners have in recent years crafted a new model for what they call staged or gradual retirement. It was initially used by well-off people in their 50s who wanted to leave a demanding job for something more rewarding. But the new model is also being embraced by older workers and often out of financial necessity. Here's how it works:

--DOWNSIZE YOUR CAREER As you approach the traditional retirement age of 65, you may have paid off the mortgage and finished with child-related expenses including tuition. You will probably have saved much of what you need for financial security. So trade in your demanding full-time job for one that is fun or rewarding, though lower paying.

--LET YOUR SAVINGS GROW You're now working less and for fulfillment but also to cover monthly living expenses. Say you had been making $80,000 a year in your primary career and had managed to save $500,000. You may be able to cover your expenses now on a salary of $40,000 or less. The key is to leave your savings untouched, if possible in a tax-advantaged investment account, to grow for an additional five to 10 years.

--QUIT FOR GOOD Now that you're in your 70s and your savings have grown to $701,000 after five years or $984,000 after 10 (at about 7% annually), you can scale back your work schedule or quit altogether and start spending the money you've saved over a lifetime.

--By Daniel Kadlec