From Full-Time to Freedom: Exploring Phased Retirement Options for Washington State and Local Government Employees

Are you a Washington state or local government employee dreaming of retirement, but not quite ready to make a clean break from your career?
You're not alone. Many public servants are discovering the appeal of phased retirement – a flexible approach that allows you to gradually transition from full-time work to full retirement.
Understanding Phased Retirement
Phased retirement is like dipping your toes in the retirement pool before taking the full plunge. It typically involves reducing your work hours while beginning to tap into your retirement benefits. This approach can offer the best of both worlds: continued income and purpose from work, coupled with more free time to enjoy life.
The Washington State Landscape
Before we dive into specific options, let's consider the unique aspects of phased retirement for Washington state employees:

1. Stable Pension Systems: Washington offers robust pension plans through the Department of Retirement Systems (DRS) [1].
2. Deferred Compensation Program (DCP): This voluntary savings plan can provide additional flexibility in retirement planning [2].
3. No State Income Tax: Washington's lack of state income tax can affect retirement income calculations [3].

With these factors in mind, let's explore your phased retirement options.
Option 1: Reduce Your Hours
One straightforward approach to phased retirement is simply reducing your work hours. Here's how it might work:
Pros:

• Maintain your current position and responsibilities
• Continue accruing pension benefits – for PERS 2 employees you will receive 1 service credit for each month that you work 90 hours or more. If you work 70-90 hours you will receive ½ of a service credit and ¼ of a service credit if you work less than 70 hours [1].
• Ease into retirement lifestyle gradually

Cons:

• May affect your final average salary for pension calculations
• Potential reduction in other benefits (e.g., health insurance)

Check with your HR department about policies on part-time work and benefit eligibility.
Option 2: Enter the Return to Work Program
Washington state offers a Return to Work program that allows you to retire and then return to state service on a part-time basis [4].
How it Works:

1. You officially retire and start receiving your pension.
2. After a required break in service, you can return to work for up to 867 hours per calendar year. Be sure to check your specific plan details. The number of hours can vary depending on what pension system you are in.

Pros:

• Receive both pension payments and a paycheck
• Continue contributing to the Deferred Compensation Program (DCP)

Cons:

• Strict hour limits and other rules must be followed
• May affect your Social Security benefits if you're under full retirement age

 The rules for the Return to Work program vary depending on your retirement plan. Always check the current regulations with DRS before making decisions [4].
Option 3: Deferred Compensation Program (DCP) Distributions
While not technically a phased retirement option, strategically using your DCP can create a phased retirement-like experience.
How it Works:

1. Reduce your work hours and supplement your income with DCP distributions.
2. You can start DCP distributions at any age after leaving employment, without penalties [2].

Pros:

• Flexible distribution options (lump sum, periodic payments, or a combination)
• Can help bridge the gap until you're ready for full retirement

Cons:

• Distributions are taxable as ordinary income
• Need careful planning to ensure your savings last

Consider using DCP distributions to delay starting your pension or Social Security, potentially increasing these benefits later.
Option 4: Phased Retirement Program (for Higher Education Employees)
If you work in Washington's higher education system, you might be eligible for a formal phased retirement program [5].
How it Works:

• Gradually reduce your work hours over a set period (often 1-3 years)
• Continue receiving a prorated salary and benefits

Pros:

• Structured program with clear guidelines
• Often allows for a smoother transition of job responsibilities

Cons:

• Not available to all state employees
• May have specific eligibility requirements

If you're in higher education, inquire with your institution's HR department about phased retirement options.
Creating Your Phased Retirement Plan
Now that we've explored the options, how do you create a phased retirement plan that works for you? Here's a step-by-step guide:
1. Assess Your Financial Readiness
Before considering phased retirement, ensure you're financially prepared.
Action Steps:

• Review your pension estimates from DRS [6]
• Calculate your expected Social Security benefits [7]
• Assess your DCP and other savings

2. Clarify Your Goals
What do you want to achieve with phased retirement?
Questions to Consider:

• How many hours do you want to work?
• What aspects of your job do you want to maintain or let go?
• How long do you envision your transition period lasting?

3. Understand the Rules
Each phased retirement option has specific rules and potential impacts on your benefits.
Must-Do: Schedule a meeting with a DRS retirement specialist to understand how different options affect your pension [8].
4. Communicate with Your Employer
Your agency's support is crucial for a successful phased retirement.
Discussion Points:

• Express your interest in phased retirement
• Explore what options your agency can accommodate
• Discuss how your responsibilities might change

5. Consider the Non-Financial Aspects
Phased retirement isn't just about money – it's a lifestyle change.
Reflect On:

• How will you spend your additional free time?
• What social connections from work do you want to maintain?
• Are there new skills or hobbies you want to develop?

6. Create a Transition Timeline
Map out your journey from full-time work to full retirement.
Example Timeline:

• Year 1: Reduce to 80% time
• Year 2: Reduce to 60% time
• Year 3: Enter Return to Work program
• Year 4: Full retirement

7. Develop a Backup Plan
Flexibility is key in phased retirement.
What-If Scenarios:

• What if your reduced hours don't work out?
• What if your financial needs change?
• What if you decide you want to fully retire sooner?

Making It Work: Practical Tips for Phased Retirement
As you embark on your phased retirement journey, keep these tips in mind:

1. Stay Engaged: Even with reduced hours, remain committed to your work. Your experience is valuable!
2. Keep Learning: Use your extra time to learn new skills, potentially opening up different part-time opportunities.
3. Mind the Gap: Ensure you have health insurance coverage, especially if you reduce hours before Medicare eligibility.
4. Maximize Your DCP: Consider increasing your DCP contributions during your final full-time years to provide more flexibility later.
5. Explore Volunteering: Supplement reduced work hours with meaningful volunteer activities to stay engaged and active.
6. Network: Maintain professional connections. They could lead to interesting part-time opportunities later.
7. Review and Adjust: Regularly review your phased retirement plan and be prepared to adjust as your needs or circumstances change.

Your Phased Retirement Action Plan
Ready to explore phased retirement? Here's your action plan:

1. Crunch the Numbers: Use the DRS website to estimate your pension under different scenarios [6].
2. Meet with Experts:
   • Schedule a meeting with a DRS retirement specialist [8]
   • Consider consulting a financial advisor familiar with public employee benefits
3. Talk to HR: Discuss phased retirement options with your agency's human resources department.
4. Explore DCP Options: Review your DCP distribution options and consider how they fit into your phased retirement plan [2].
5. Create Your Timeline: Develop a tentative timeline for your transition to full retirement.
6. Put It in Writing: Document your phased retirement plan, including financial projections and lifestyle goals.
7. Stay Informed: Keep up with any changes to retirement rules or programs that might affect your plans.

Remember, phased retirement is about creating a transition that works for you. It's an opportunity to design a unique next chapter that balances work, leisure, and financial security. With careful planning and the right approach, you can create a phased retirement that offers the best of both worlds – the satisfaction of continued contribution and the freedom to enjoy life on your terms.
Sources:

1. Washington State Department of Retirement Systems, "PERS 2" 2024.
2. Washington State Department of Retirement Systems, "Deferred Compensation Program," 2024.
3. Washington State Department of Revenue, "Taxes and Rates," 2024.
4. Washington State Department of Retirement Systems, "Working After Retirement," 2024.
5. Washington State Human Resources, "Phased Retirement," 2024.
6. Washington State Department of Retirement Systems, "Benefit Estimator," 2024.
7. Social Security Administration, "my Social Security," 2024.
8. Washington State Department of Retirement Systems, "Retirement Planning Checklist," 2024.

-Seth Deal