The end of the end? Most Americans only 'partially' retire, study shows

In American culture, we tend to think of retirement as a black-and-white transition: Your employer throws you a party, someone gives you a gold watch and, just like that, you cross the line from "working" to "not working."

For most Americans, that's not really what happens. According to a new study from JPMorgan, 53% of U.S. households drawing retirement income are only "partially" retired — meaning either they're still working some hours, or one spouse has retired and the other is still working.

"There may be a transition period where either an individual retires more gradually or one member of a couple retires before the other," said Sharon Carson, retirement insights strategist at JPMorgan and the author of the study. "Phasing into retirement could be a great opportunity — or it could be something that has to be done due to lack of financial preparedness."

It's a dynamic that many financial advisors say is increasingly common.

"While I definitely continue to see clients ready and excited to fully retire all at once, I am seeing more and more clients opting instead to ease into retirement," said Carla Adams, founder of Ametrine Wealth in Lake Orion, Michigan. "They don't want to stop working but do want more flexibility, more freedom and less stress."

In recent years, particularly since the COVID-19 pandemic, millions of Americans have "unretired" after leaving the workforce. In 2020, the number of U.S. retirements exceeded expectations by 2.4 million, according to the Federal Reserve of St. Louis. But by 2022, 1.5 million of those retirees had returned to work.

But COVID isn't the only reason Americans work during retirement. Today 20% of retirees have either part-time or full-time jobs, and another 7% are looking for work, researchers at T. Rowe Price have found. Forty-eight percent said they work for financial reasons, but almost just as many — 45% — said they do so for their social and emotional well-being.

"Many people who retire all at once can get shocked by the identity shift and reduction of mental stimulation," said Thao Truong, a CFP at Morton Wealth in Calabasas, California. "As the saying goes, 'We need to have enough money to sleep at night, but also enough purpose to get up in the morning.'"

This lifestyle — partly retired, partly working — creates unique financial challenges. Surprisingly, JPMorgan found that in the first year after a partial retirement, many households dramatically increased their spending. Importantly, this was only true of households those earned less than $150,000 before retirement

"Given more of them have revolving credit card debt and lower savings balances, we think they may be spending more because they can when they first get the extra income — hence the surge," Carson said.

Meanwhile, retirees who are now only working part-time earn less than they did before — and are drawing down their retirement nest eggs. For any partial retiree, this is a new set of conditions that requires new financial advice.

"The most common partial retirement we encounter is when a client reduces their workload to earn enough to cover their living expenses, but they stop contributing to retirement savings," said Jorie Johnson, founder of Financial Futures in Brielle, New Jersey. "We need to rebuild their retirement projections to accommodate the lack of contributions for the partial retirement years."

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Then there's the Social Security question. Beyond a certain amount of income — in 2024 it's $22,320 — the program penalizes some retirees for collecting benefits and working at the same time. The rules are complicated, and an expert's advice can be highly valuable.

"If people don't have enough of their personal retirement savings to draw from, and they need to tap into Social Security but are younger than their full retirement age, be extremely careful," Truong said.

But that's not the only way to be partially retired. JPMorgan also counted couples in which one spouse is retired, but not the other. Many wealth managers say this arrangement is widespread among their clients — perhaps even more so than the alternative.

"I would say that it is less common for a couple to fully retire at the same time," said Ben Lex, a financial advisor at Fiduciary Financial Advisors in Grand Rapids, Michigan. "The critical piece is that both spouses are on the same page and working toward the same retirement goal."

And as Lex pointed out, there are often sound financial reasons for doing it this way.

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"One spouse may be ready to be done with work before the other, and it may financially make sense for one spouse to start receiving Social Security benefits while the other continues to work," he said. "They may still enjoy their work, or they may be too young to access Medicare and continue working for insurance or benefits."

Whether individually or as a household, Americans are increasingly treating retirement as a gradual process, not a finish line. And many financial advisors see that as a good thing.

"Partial retirement is a hidden gem allowing planners to invest more aggressively," said David Demming, founder of Demming Financial Services in Aurora, Ohio. "Also, working for play is a different mindset than working for pay."

This story has been updated to include comments from Sharon Carson, the author of JPMorgan's study.