Editor's Note: "In The Trenches" is a column written by FA Associate Editor Jim McConville on how advisors approach financial planning issues. Please contact Jim at jmcconville@fa-mag.com if you are interested in participating.

Can you half-retire?

A growing number of clients are opting for "phased retirement," where they work part time before eventually transitioning to full-time retirement.

"The number of workers choosing phased retirement has definitely increased in the last 10 years," says Joe Wilson, a TIAA-CREF wealth management advisor in the Atlanta office. In the last 14 years, Wilson has worked with dozens of clients who have chosen to work part time until they fully retire.

"Today, it's a different financial story," Wilson says. "People started considering other options. It's no longer just an either or decision. Now workers can retire, semi-retire or don't retire at all."

Wilson says some clients choose a phased retirement to pursue something they always wanted to do; others want to keep one foot inside the workplace door; and others want a supplemental income stream. Regardless of motivation, Wilson says, each such client needs to craft a financial game plan to make it work.

One of Wilson's more unusual phased retirement clients was a 68-year-old Atlanta resident who sold his statistical research and consulting business to another firm for a hefty price. Instead of retiring outright, he agreed to the new owners' offer to stay on as part-time consultant at half his previous salary. His work output is now gauged upon the number of research papers he produces rather than hours worked.

"The right opportunity was presented to him," Wilson says. "He wasn't necessarily ready to retire outright, so he decided to stay on, essentially as a goodwill ambassador who the owner could draw on for his experience and knowledge."

After agreeing to sell his business, the former owner and Wilson met for several sessions to craft a retirement plan. Wilson said the plan addresses how the former owner's property and assets would be divided among his family members should he die and includes a provision to insure the financial welfare of his one grandchild.  

Wilson says another issue the plan addressed was appointing someone to be in charge of the client's estate iif he were to become physically incapacitated. "We wanted to make sure that if something were to happen to him, we would have a person who could step in and carry out his wishes," Wilson said.

So far, the former owner hasn't drawn on his retirement funds and lives comfortably on his current half salary.

"He is going to take Social Security and then a portion of the proceeds from the sale of his business," Wilson says. "It won't be a complete replacement of his pre-retirement income. It will be a fraction of that, because that's really what he felt he needed to live off of because he didn't live off of his full salary prior to selling the business."

Wilson says some clients come into his office chomping at the bit to make the full- to part-time work switch as quickly as possible. But the moment of truth on whether that can be done comes when he crunches the numbers based on a client's portfolio.

Wilson says he's found that in most cases, shifting from full- to part-time work has less to do with money and more with a client's desire to have more free time.

"One of my clients told me that at a certain age he no longer felt the need to strive to achieve in his profession and was now looking to find other activities that would give him meaning in life as he approached retirement," Wilson says.

Some clients quit their full-time job after they've had three years of high earnings and leave to work part time elsewhere, says Wilson. "They're thinking 'I don't want to water down what my pension plan will be, so I'll collect pension benefits there and work part time elsewhere.'"

Wilson, who has been a financial advisor at TIAA-CREF for almost 15 years, offers clients these tips in developing a phased retirement strategy:

Determine whether you are leaving money on the table if your pension plan is based on a diluted formula -- one that bases payouts on highest earnings years.

Clients should determine how earnings from a part-time job would impact Social Security payments. If they don't plan to draw Social Security while working part time, will their payments be reduced in the future because of lower earnings from a part-time job? They should also consider at what age is best to start collecting Social Security.