Pre-retirement, retirement, and post-retirement: policy considerations and consequences Open Access

Phased retirement (“arrangements that allow an employee to continue working with a reduced workload and eventual transition to full-time retirement”, as per a definition given at https://www.investopedia.com) is about creating a path towards post-contract life by which an employee does not just go from working fully to not working at all. There are various formats —slowing down at one’s current job by, e.g., taking additional vacations, working less hours, creating one’s own part-time job, or transitioning to a different career. And there are various perspectives; one is demographics. As people are living longer, they may have financial reasons which motivate them to secure an income after retirement. There may also be personal reasons, for instance, they want to stay within the working environment but without unhealthy stress (distress). Stress, in general, is another antecedent, as physical or emotional pressure in the job becomes too heavy when age progresses (Mäcken, 2019). Another reason for prolonged employment is the brain-drain of baby boomers who depart into retirement within a short time span without having the time to transfer their knowledge and skills. Then there is the phenomenon of the Great Resignation (Hirsch, 2021), which includes themes of exhaustion, anxiety, being stretched beyond capacity, and feeling unappreciated by institutional leadership, whether in academia (Moody, 2022) or elsewhere (Allman, 2021). On the other hand, when baby boomers do not all retire and remain in the office, the positive effect of smoothed knowledge transfer might be accompanied by stress in the labor market for the younger workers/employees (Corwin, 2015).

While demographic data on the phenomenon are available in almost all national statistics, global survey results indicate that the motivations are only available from a 2004 study conducted by Watson Wyatt Worldwide (2004). This study found that 57 percent of those currently in phased retirement opted for the arrangement to obtain more leisure time. Among these individuals, 42 percent indicated that they nevertheless enjoyed their work, while 28 percent said they needed income from continued work. Additionally, 32 percent had fully retired but later returned to work part-time. Almost 10 percent of the total had been forced into phased retirement due to job restructuring, and about half of these stated that they only accepted the arrangement because they needed the income. Some of this may have changed since 2004, but there is still a similar pattern of diverse motivations (Van Solinge et al., 2021).

Based on the above antecedents, governments have developed policies and programs to regulate the phased-out retirement practices. Even though voluntarism is the key factor for successful accomplishment of phased-out retirement, there is a need for government regulation: It is important that there are rules which clarify the goals for prolonged occupation versus early retirement; it is only governments that can warrant secure financial planning in the matter for both employers and employees and foster their self-efficacy (Ghadwan et al., 2023). While the main field of regulation is with state employees, many governments also have issued early retirement laws for the private sector. For example, Germany, where private pensions are regulated by a strict corporatist regime, has so-called seniority schemes which usually require a minimum contribution period (about 35 years) in addition to a minimum age (about 60-63 years) and are relatively generous with an average replacement rate of 77 percent. This also applies to regulation on early retirement in which there is a relatively high stratification, i.e., persons with higher wealth make more use of the offer (Berkel and Börsch-Supan, 2003; Schils, 2008). In other European countries, the area of social security is more open for liberalization with a range reaching from the most liberal countries like Denmark (0.205) and the Netherlands (0.214 on an index where 0.0 is no state intervention and 1.0 is exclusive state systems (Abdullayeva, 2020).

Various regulations for phased-out retirement were developed within this spectrum – from setting a life cycle with fixed stages to life courses with fluid and variable personal choices. In developed countries, employees were allowed to make an early exit from the labor. This runs by several routes, including occupational pensions, disability benefits, unemployment, and public pre-retirement schemes (Contini and Leombruni, 2006). These, however, conceal wide variations in experience among individual retirees, some of whom get generous occupational pensions, while others are required to endure spells of part-time work or unemployment-cum-retirement on low benefit levels (Jackson, 2009; OECD, 2006).

It has also been argued that public retirement programs pay the elderly substantially more than the effect is worth. While the main motive behind such programs is to create job vacancies that can be occupied by the young, studies by the National Bureau of Economic Research have shown that efficient equilibria in the labor market are better attained with no government subsidies to the elderly. When they are offered costly unemployment and welfare payments, many of them take their time before they give up their jobs; hence, the beneficial effects on those searching for jobs are over-emphasized (Bhattacharya et al., 2004). However, this view may be deemed to be one-sided, as it neglects the well-being effect of early or phased-out retirement. Still, in some cases, labor market policies are over-exploited. For example, in Germany, when early retirement packages were introduced during the 2007 recession for helping small and medium companies adapt their workforce to dwindling orders, it was the large companies which first used the policy (Brussig and Wübbeke, 2009).

The societal effects of gradual and phased retirement are manifold. There are repercussions on the macro-economic level, the labor market and on the business level, and there are benefits from the practice to individuals and to societal groups. This is all related to how ageing is viewed by policy makers.

Ageing, as well as life itself, is far detached from what it was in the past. Ageing starts later and life has been prolonged. Hence, one might view later retirement simply as a correction of the trend, which over the past decades has been to work less and to lower the effective age of retirement (Forman and Chen, 2008). Reverting that trend is equivalent to reducing the risk that the welfare of society is undermined, especially that of the upcoming generations. Most of this risk is not explicitly related to ageing, but if governments do not approach that ‘hidden’ relation, they will incur implicit debts for pension systems which stand for several times the value of their annual GDP (Beetsma and Oksanen, 2007). This is one of the inadequacies of labor market policies. It can only be rectified by thoroughly redressing the balance of resources that are devoted to the labor market. This then will lead to financial sustainability and the intra- as well as the inter-generational equity of pension systems, and it will also affect how the labor market equalizes supply and demand.

Apart from financial considerations on the national level, there are also cost and income considerations on the business and individual levels. The higher participation of the elderly in the labor force may be motivated by financial needs which, in turn, affects the cost of businesses. So, often approaches are sought to create a legal and economic environment for older workers that is more accommodating. For instance, the U.S. has changed the financial incentives to work through expanding the Earned Income Tax Credit for individuals without dependent children (Munnell and Walters, 2019). The European Employment Strategy of “active ageing” of the early 2010s has not included such incentives and it has met with difficulties in many European states which had implemented early retirement policies from 1970 onwards and then again in the 2007 financial crisis — just a few years before the incentive. In Germany, which released a package of both monetary (e.g., lower benefits for early retirement and prolonged unemployment) and non-monetary measures (like skills training for older and low-skilled workers), the effect was weak: Early retirement did not drop substantially (Eichhorst, 2011). The government coalition reigning under the leadership of Ms. Merkel obtained some results, afterwards. But then, with the populist measures of the Green party in the new government as from 2021, this was substantially reverted (Datts and Gerl, 2023).

Another societal issue is training measures for older workers. Both the employers and the government must ensure that they are target-based. While there is a need for the change from an industrial to an information-based economy with a tendency to eliminate low-technology jobs, the incentives to opt for phased-out retirement must also comprise what may be called “soft factors”. Educational offers which prepare for the after-work status, support for health improvement and the appeal of togetherness may cause a desire to at least partially remain in the workforce. Togetherness is one of the social and psychological benefits that retirement cannot provide, and some individuals may not value leisure as highly as they do employment (Gustman and Steinmeier, 2000).

There is, however, another aspect of ageing in our times. Longevity bears risks as well, and both gradual retirement and part-time work after retirement may contribute to reducing these risks by balancing the utilities of leisure and consumption. The labor market and the social security system benefit from the population being in good mental and physical condition and with increased life-time earnings (Cahill and Quinn, 2020). Moreover, as change in retirement age will change lifestyle and consumption, which may generate more purchasing power, and hence the markets of products and services shall benefit. There is a statement by University of Illinois Public Health Professor Jay Olshansky that “healthy-lifespan extension should save money, not cost us more” (Olshansky, 2016). By maintaining a healthy life longer, we will decrease, not increase, the economic impact of ageing.

A special benefit for society is that the skills, experience, and knowledge of older workers does not vanish as if they would retire at short notice but that they have more time to transfer all this to others. The whole range of preconditions and the general importance of this topic will be dealt with in the next sections.

People strategy, in any employee-employer relation, has an effect on the demographic composition of the workforce. As employers have followed the respective government policies on labor, the consequential effect was that retirement ages moved upwards. In the U.S., the effective retirement age for men in 2018 was 68 years which is like the one in 1970 after two decades of falling retirement age. For women, retirement age increase to 67 years. The picture in Europe is mixed: While in Northwestern Europe retirement age approaches 66 years, it is still around 61 to 62 years of age in Italy, Spain, Portugal and Greece (OECD, 2019). The German government, while cutting back the average retirement age installed a regime of early retirement for professions deemed to be stressful, but it is now struggling to revert this (Riphahn and Schrader, 2023). The attempts which are under way in Southern Europe to move the statutory retirement age up from its present levels have gained momentum especially in Italy under the new government (Trentini, 2023).

Latin American countries, where the retirement age is rising more than in Europe, must take account of the poor health among those who are affected by the new retirement age. Health conditions of the older workers or retirees should be prioritised above the objective of maintaining fiscal balance through the measure of prolonging the retirement age (De Souza et al., 2019). The health condition of senior workers, then, is one main argument for phased retirement also in Latin America: The assumption is that phased retirement arrangements may help older workers improve their work-life balance and to reach their (higher) statutory retirement age in good health. The same objective is pursued with another labor policy measure which is bridge employment. Bridge employment is paid employment contracted by older workers after their career job (prematurely) ends and before they permanently withdraw from the labor force. This may be employment in a new job, self-employment, work with a new employer, or work in a new industry (Cahill and Quinn, 2020).

The policies adopted by the U.S. have led to about 18 percent of salaried workers born between 1931 and 1941 being in phased or partial retirement in 1998 and 2000 (Scott, 2004). The procedures to be followed by government agencies are ruled by 5 U.S. Code § 8336a, and its specifications on working hours, wage rates and pension receipts are also adhered to by private firms (Kantarci and van Soest, 2008). In Europe, such detailed regulations do not exist. The European Commission issued a few recommendations. However, no homologous implementation was adopted by the member states. In the UK, default retirement age was abolished in 2011. In consequence, the Court of Justice had to deal with some concerned university professors and public prosecutors. It argued that within their jobs scientific progress might demand that older jobholders retire to make way for younger ones (Barrett and Sargeant, 2015).

There is a wide discussion on pension policies among the legal profession, academics and practitioners which is documented in a broad array of publications (Carr et al., 2021). The most comprehensive survey on the situation in the U.S. is the GAO report from 2017 (US GAO, 2017); the GAO has also published a study on the experience of other countries with phased retirement (US GAO, 2019). All this literature covers both the consequences of policymaking as well as the statistics on the matter. Two examples will be discussed: one from Japan and the other from China.

Japanese management has a very long tradition of continuously adjusting the quality and quantity of the labor force to changing market and technological conditions. The background is the well-known system of life-time employment, and a promotion and wage scheme based on seniority. From there, the objective of always securing the state-of-the-art skill level of labour force for the firm is sought to be attained through pre-retirement step downs (“shukko”). Under this practice, some older workers are steadily downgraded in terms of prestige and benefits, though their employment is secure up to retirement age. Skills rather than mere seniority may become increasingly important in the late stages of one’s career; so, older workers may even enjoy an improvement in status and benefits when their skills are outstanding (Osako, 1988).

In China, the government, having become aware of the country’s demographic deficits for quite some time, started to permit gradual and phased retirement several years ago (Zhang et al., 2012). Ageing had not been a primary public policy issue in China until the aged population reached a proportion that threatened economic development and social welfare. As family and kin were the first source of social support in China for centuries, the government essentially kept its hands off the elderly and the family (Fowler et al., 2010). Even the communist revolution has not succeeded in undermining the power of family bondage, but then the “one-child” policy developed into the “empty nest” family within a graying of the population (Guo et al., 2009).

With the advent of market-economy structures in China, pension funds were set up and the organization of these multi-billion funds turned into reforming the overall pension system, including gradual and phased retirement (Chen and Turner, 2021). Still, the societal effect will be different from that in the West not only because of the strong family bonding in China but also because of the effect Confucianism has had on the Chinese society for more than two thousand years. The dedication to Confucianist ideas has had a revival in China as it is being introduced into the general formative learning to an increasing degree (Zhao, 2018). Confucianism regards the human beings in relation to others. Western thinking is often contrastingly different as it places the individual — and individual well-being — first.

Individual well-being, certainly, is a criterion that is very subjective. What is meant by this depends on the circumstances in which an individual lives. But overall, older workers would regard it as a benefit (an increase in their well-being) if their workload can be reduced. Still, for many workers, easing into retirement is an expectation that is never realized. A 2017 report by the U.S. Government Accountability Office said that among workers in the U.S., ages 61 to 66, roughly 29 percent said they had planned to reduce their work hours as they transitioned to retirement, but fewer than 15 percent subsequently reported that they were partially retired or were gradually retiring from their jobs. Moreover, an August 2019 survey by Provision Living, a provider of senior living communities, found that among 1,032 working seniors aged 65 and older, 20 percent wanted to stay employed but cut back their hours (Miller, 2019).

It will not just be the reduced work time which fosters well-being. When age advances, the personal environment of an individual, by logic, enlarges, and in quite a few cases, older people have a broader range of engagements (with family, networks, charities, etc.) will follow. The question is whether they will maintain these personal connections when they retire. It was found that women often do not. This was revealed in a study which examined employment biographies for older women and men from four nations: Germany, Italy, Sweden, and the U.S., along with their links to family experiences. In all cases, women prevail in groups representing a weak(er) attachment to the labor market and men prevail in groups signifying a strong(er) attachment. This pattern is much stronger for Sweden and Italy (where family ties are stronger) than for Germany and the US. This demonstrates that older adults’ employment trajectories are gendered. They differ among the sexes (Worts et al., 2016). Still there may be a mediating effect through Internet use which fosters social participation for the elderly as well, and women in particular (Zhang and Li, 2022). This would lead us to the topic of knowledge.

Knowledge creation, preservation and transfer are the most essential constituents for economic and social progress anywhere. With his statements on the prominence of the knowledge economy, Peter F. Drucker emphasized the topic early on (Drucker, 1979). Since then, the techniques of producing, managing and divulging knowledge have evolved spectacularly. Also, permanent connectedness, which surely spreads knowledge of whichever type and is a prime feature of the young, can also contribute to sharing the valuable treasures of knowledge if it extends to the elderly.

There is one field of knowledge and skills which some of the older workers often have not had the opportunity to develop, which is advanced digital capabilities. Employers should make sure that no “digital divide” develops between age cohorts or qualification groupings in their workforce. Capacity building for computerization and online activities, while, in part, falls on the efforts of the employees themselves, must receive employer support where necessary. Modern people strategies need to steer away from solely adapting workers to the jobs that are available in an organization and instead provide capabilities which the workers can also use in their private lives. As COVID has made apparent that not all older persons had sufficient means to access public services which would help them to maintain financial security when they leave the workforce prematurely (Miller, 2019). This has demonstrated that digital literacy is doubly important for regaining “employability” and for “accessing” public services. Therefore, phased approaches to retirement need to place digital literacy into policy planning.

Firms must also be aware that there are barriers to increasing employment of older workers in the context of technological progress. When older workers are engaged in codifiable, routine tasks, they may be particularly prone to being displaced by computers and robots (Autor, 2015). Only if they are highly incentivized to acquire new skills, these older workers would then be able to switch to tasks that are less likely to be automated. This will only be successful if it is coupled with labor market reforms that remove disincentives for older workers to continue working, in particular, by eliminating institutionalized pathways to early retirement (Eichhorst, 2011).

The emphasis on digital skills should not overshadow the importance of the many soft skills that older workers need to transfer when retiring. It is the mix of soft and hard skills that creates, sustains, and utilizes the organization’s knowledge base, and it is mainly the employees with a long working history who possess those soft skills. Leading a group, managing change or promoting the adoption of simple handling techniques cannot solely be learned from textbooks. Additionally, there is tacit knowledge, i.e., the knowledge of undocumented processes. For example, in high tech manufacturing, a small change introduced by a foreman in a valve-connector, or a flow system can optimize production. When a person retires, structures must be set up appropriately to support the transfer if that person’s knowledge to those who remain in the firm (Despres and Chauvel, 2000).

Often the obstacle is that senior executives do not have a clue about knowledge walking out the door and that they only think about succession planning when considering the higher levels of the organization (DeLong, 2004). They often do not know about the barriers which prevent an organization from tracking the knowledge of employees before they leave. They are manifold and start with knowledge management per se, of which one important part is to ensure that knowledge is not lost for a firm when an employee retires. It mainly depends on corporate culture whether knowledge transfer runs smoothly or not. One critical barrier is the ineffective use of collective knowledge by teams. While the objective of project teams is to amalgamate members of diverse backgrounds for the benefit of an integrated outcome, the single assumption often is that expertise translates into performance benefits. But it is of the same importance that employees actually use and understand one another’s expertise and that they acquire this expertise, at least basically (Gardner, 2009).

Voluntariness is deemed to be one of the main characteristics of entering into early or phased-out retirement. Retirees who are not forced to retire early will have significantly higher well-being as per an analysis performed by the University of Wisconsin (Bender, 2012). There is more to this than just the perspective of being freed from labor together with a secure economic well-being. This has not been examined frequently, while there are quite a few labor studies which explore the non-economic well-being of workers (e.g., overall job satisfaction or satisfaction with promotion prospects) (Frey and Stutzer, 2002). But research on retiree well-being is scarce. What this research, however, needs to do, is two things. The first is to find out what really motivates early retirement (and what of it is voluntary), and the second one is to make is a clear distinction between ‘happiness’ and satisfaction. The ‘well-being’ referred to must be satisfaction with retirement (in the same way that job satisfaction relates to well-being gained from work), regardless of the other factors affecting the global well-being of the elderly.

The first issue of motivation cannot be analyzed only from the perspective of human needs as it is also determined by the cultural values of the social system in which individuals face work experiences. These will motivate, respectively, how retirees regard their retirement status. From a negative perspective, if motivational factors do not exist in the workplace, leaving it early will be a very understandable choice. This would be a “push-factor” – other than “pull-factors” like more time for family, hobbies, networks, and charities. Health is another such factor – on the “push” side it is the aspect of work overload; on the “pull” side it is the expectation that one can do more for one’s health when free from work.

There is clear evidence that push factors (e.g., poor health) are more important for those who are involuntarily retired, and that pull factors (e.g., leisure) tend to be more important for voluntary retirees (a first study is from Shultz et al., 1998; the same results were found twenty years later by Riekhoff, 2018). Also, what retirees can do with their time is an important determinant of how well they feel. Retirees who work part-time voluntarily (through phasing-out mechanisms or volunteering assignments) have higher levels of subjective well-being than those who are not similarly engaged. This was found in a study by Butrica and Schaner (2005). So, what motivates a person to retire early of his/her own will (other than being forced into early retirement involuntarily) is the expectation of an increase in well-being. The second major factor is health. Those with poor health naturally experience dramatically lower levels of well-being, but it was the hope that they could improve their health which made them opt for early or phased-out retirement. One third factor is behavior changes. Often, early retirees seek embeddedness in a social environment from which they draw the feeling of being loved or being needed. When they have already been embedded in such communities, this increases the likelihood of early departure from the workforce; and their example will motivate others to join community networks when they retire (Lee et al., 2014).

Retirement readiness, in most circumstances, does not exist in a vacuum. Many employees need some types of incentive or support for transitioning into after-work-life. There are cultural differences in regard to this issue; there are other differences that stem from the educational levels of the prospective retirees; and there are differences by gender. Preparedness will mostly depend on whether the employer and the employee have successfully prepared a path to transition. The utmost ingredient here is confidence, and while government measures can motivate or de-motivate early or part-time retirement, reliable conditions laid out in the work-contract will ensure that the retirees feel safe in the later stage of their lives. Social influence plays an important role as well. However, the policies adopted by a government, while helpful in the short run, do not warrant reliability because they may change if the government changes.

Prospective retirees must seek goal clarity, digital and financial literacy, and embeddedness in a strong social system or community. Only then will the various formats of transition to life after work contribute to the well-being of the individual. Another perspective to consider is whether and how those formats affect the well-being of society as a whole. This is where government measures need to be directed, and they must cope with the challenge of effectively balancing societal and individual well-being. Populist measures can destroy this balance because they tend to focus on a specific segment of the population from which a ruling party hopes to gain support in an upcoming election. Stable and consistent long-term politics will result in the desired outcomes for the labor market, the economy, and ultimately, for all individuals affected by these policies.

Government changes and party politics obstruct consistent long-term and holistic policy making. This will destroy trust amongst people within a society, which is crucial for collaboration between businesses, trade unions and other employee associations that partner with the government in labor affairs. When this affects people who are nearing retirement, all well-intentioned efforts will be in vain. As mentioned, Germany introduced measures after the 2007 financial crisis aimed at motivating employees to retire earlier. However, it was not successful because no guarantees were given with regard to tax effects; also in Germany, party politics are presently hampering labor market reforms, including the retirement framework (Celico, 2023). By comparison, Southern Europe has seen strengthened cooperation between the government and businesses, allowing labor market reforms to transit from protectionist to flexible, aligning with financial reforms (Asensio and Ferreira, 2024). At a very different level, Japan is working to overcome its labor market challenges by creating a new economic model that embraces digital and green transformation as well as budgetary reforms (Whittaker and Nakata, 2024). The lesson to be learned is that policies on ageing, whether retirement reforms or endeavors to increase inclusion of the elderly, will only succeed if they are embedded within a holistic set of government measures that promise continuity, and if employers’ and employee’s associations collaborate with politicians. Scholars in the field of labor economics and journalists who report on labor market trends must advocate for the need for continuity and cooperation beyond party lines. The topic of ageing and how to deal with retirement issues are far too important and needs to be kept out of political skirmishing.