Retirement is evolving—here’s why companies need to adapt too

The U.S. workforce is poised for an unparalleled transformation.

2025 will see more Americans reach age 65 than any prior year—and this pattern is expected to hold until 2027. As millions of workers transition into retirement, businesses will face challenges replacing their seasoned staff with younger, less experienced employees.

Demographic trends are a key driver of this issue: birth rates have fallen for almost two decades, leading to fewer young people joining the workforce annually. By 2032, the U.S. is forecast to experience its biggest labor shortage ever.

Naturally, we can’t create more young workers overnight. However, employers still have time to avoid the coming talent gap. To do this, they must reevaluate current workplace standards and stop viewing retirement as an abrupt end (a cliff) but rather a gradual transition (a gentle slope).

In industry terms, this is known as “phased retirement.” At its core, it means slowly cutting back on older employees’ work hours and duties while still using their knowledge—preferably to mentor the next wave of workers.

Businesses rely on their most experienced employees to remain. Currently, over 70% of U.S. employers report struggling to find the skilled workers they require. Additionally, many recent college grads lack the soft skills modern jobs need, like effective communication and leadership abilities.

Retaining experienced staff as mentors is an easy way for companies to teach these essential skills to new hires.

Phased retirement also assists businesses in handling the effects of the upcoming workforce shrinkage: it prevents brain drain, eases succession planning, and maintains the institutional knowledge and connections that keep companies successful.

But phased retirement isn’t just good for companies—it also meets the needs of older workers, many of whom are already defying traditional retirement expectations by staying employed longer.

A lot of retirees want to keep working in some capacity after hitting retirement age. Today, Americans aged 65 and above are almost twice as likely to be employed as they were in the late 1980s.

Why is this? Some older workers stay employed longer to make their retirement more financially stable. Others want to keep participating in a job or workplace community they love.

For some new retirees, the sudden shift from full-time work to a lifelong break is jarring. They might want the freedom retirement brings but are reluctant to fully let go of the routine, income, and social ties that add purpose to their lives.

Choosing to retire or keep working affects every aspect of a person’s life. Working (even part-time) can boost mental health in later years. Phased retirement has been shown to help older workers stay energetic and reduce tiredness. Recent surveys also indicate that many people over 50 care more about having a purpose than feeling young.

On the other hand, stopping work entirely when retiring might speed up cognitive decline in some older Americans.

I’ve witnessed the benefits of phased retirement firsthand through Abbott’s Freedom 2 Work program. Employees nearing retirement can opt to reduce their hours while still earning money, contributing to their 401(k) plans, and putting off Social Security claims.

Some use their extra time away from the office to travel or spend time with family; others enjoy the opportunity to rest and come back to work refreshed. For many, this flexibility lets them keep doing the work they love for longer than they would have otherwise.

Workforce development isn’t just about training young employees in the skills they need to succeed at work. It’s also about making sure our most senior, experienced workers can keep contributing meaningfully in their roles for as long as they want.

Organizations are catching on to this and are increasingly open to gradual retirement options. Today, almost 40% of HR executives say their companies provide some type of phased retirement—over twice as many as before the pandemic.

Phased retirement is a win-win for both workers and employers: it preserves valuable expertise while letting older employees continue doing work they care about even after their golden years begin.

The opinions expressed in commentary pieces are solely the views of their authors and do not necessarily reflect the opinions and beliefs of .