Retirement is changing. Here’s why companies need to change, too

Extractive Summary of the Article | Read | Listen

America’s workforce is on the verge of an unprecedented transformation.  More Americans are turning 65 in 2025 than any year before. That trend is set to continue through 2027. As millions of employees age into retirement, employers will find themselves struggling to replace that seasoned talent with younger, less experienced workers. 

Part of the problem stems from demographic reality. Birth rates have declined for nearly two decades, which means fewer young adults are entering the workforce each year. By 2032, the United States is projected to face the largest labor shortage in its history.

Of course, there’s no way to manufacture more young workers. But it’s not too late for employers to stave off the impending talent deficit. To do so, they’ll need to rethink prevailing workplace norms — and start treating retirement not as a cliff but as a gentle slope. 

It’s called “phased retirement” in the industry jargon. At its most basic, it involves gradually reducing work hours and responsibilities for older employees while still leveraging their expertise, ideally to coach up the next generation of workers.

Employers need their most seasoned workers to stay on. More than seven in 10 U.S. employers today say they can’t find the skilled workers they need. And many recent college graduates lack the kinds of soft skills that today’s jobs demand — including clear communication and leadership. 

Phased retirement can also help companies to manage the consequences of the looming workforce contraction by forestalling brain drain and smoothing succession planning — all while preserving the institutional knowledge and relationships that help companies thrive.

But phased retirement isn’t only beneficial for businesses. It also serves the needs of older workers, many of whom are already breaking traditional retirement norms by staying in the workforce longer.

Many retirees want to continue working in some form after they reach retirement age. Americans 65 and older are nearly twice as likely today as in the late 1980s to still be working.  Why? Some older workers are seeking to make their retirements more financially sustainable by staying on the job for longer. Others wish to remain engaged in a job or a workplace community they enjoy. 

Some new retirees are caught off-guard by the abruptness of the transition from full-time work to a permanent vacation of sorts. They may want the freedom retirement offers but are hesitant to step away completely from the structure, income, and social connections that can give their days meaning.

The decision to retire or keep working has a direct impact on every area of a person’s life. Work — at least in some capacity — can lead to better mental health later in life. Phased retirement has proven to help older workers maintain vitality and reduce fatigue. And recent surveys suggest that many people over 50 value having a sense of purpose more than feeling youthful.

By contrast, completely withdrawing from the workforce upon retirement may actually accelerate cognitive decline in some older Americans. 

Workforce development is not simply about training young employees in the skills they need to succeed in the workplace. It’s about ensuring that our most senior, experienced workers continue to make meaningful contributions in their roles for as long as they’d like. 

Organizations seem to be realizing as much — and are increasingly embracing incremental retirement options. Nearly four in 10 human resources executives now say their companies offer some form of phased retirement — more than double the share from before the pandemic.

show less