Can I go part-time instead of fully retiring?

Phased retirement is any arrangement where you move from full-time to part-time work instead of stopping all at once. Some employers have a formal program. Many do not, and the terms are negotiated. Pay, health coverage, and how a pension treats part-time years all depend on your employer's plan rules, so get them in writing before you cut hours.

The federal government is one example of a formal program. Under OPM rules, eligible employees work half-time, receive 50% of their regular pay plus 50% of their annuity, and must spend 20% of the part-time schedule mentoring. It requires 3 years of full-time work before entry, enough service (for FERS, 30 years at minimum retirement age or 20 years at 60), and the agency's agreement.

If you also claim Social Security early, part-time pay runs into the earnings test. In 2026 the limit is $24,480 if you are under full retirement age all year. Example: you earn $34,480. That is $10,000 over, so SSA withholds $5,000 of benefits. In the year you reach full retirement age the limit is $65,160 and the withholding is $1 for every $3 over. From full retirement age on, there is no limit.

Withheld benefits are not lost. At full retirement age SSA recalculates your benefit to credit the months it withheld. In the first year of retirement a monthly rule also applies: in 2026 you get a full check for any month you earn $2,040 or less, even if your annual pay is over the limit.

What the rule of thumb misses: part-time hours can drop you below your employer's threshold for health benefits or pension accrual. The paycheck may be the easy part of the math.