Employment of workers 65 and older has risen 117% over the past 20 years, according to the National Institute for Occupational Safety and Health.

That trend is likely to continue. Forty-four percent of workers expect to retire after 65 or not at all, and among workers 50 and older who aren’t already semi-retired, 29% expect to reduce their hours rather than stop working, according to Transamerica Institute's 2026 Employers, Workers, and the New World of Work report.

Part-time work is already far more common among workers 65 and older. In 2024, 38.3% worked part time, nearly three times the 14.2% share of workers ages 55 to 64, according to the Bureau of Labor Statistics.

Employers say they support the shift: 83% support employees working past 65, according to Transamerica. But far fewer offer ways to scale back, with only 37% allowing workers nearing retirement to move from full-time to part-time work and 32% allowing moves into less stressful or demanding roles.

More workers want a period between full-time employment and retirement, but benefits eligibility can still make that transition difficult to offer.

Benefits do not scale neatly with reduced hours

Employer-sponsored benefits remain heavily concentrated among full-time workers. In March 2026, 87% of full-time private-industry workers had access to healthcare benefits compared with 24% of part-time workers, according to the Bureau of Labor Statistics.

Santhosh Babu, founder of YourCVmaker, says a 66-year-old high performer hit a benefits threshold while planning her transition toward retirement. "She asked to scale back to 24 hours/week to focus entirely on mentoring junior staff," Babu says. But the company's group long-term disability plan required at least 30 hours a week for eligibility. "Going lower meant losing coverage entirely."

Health coverage created another barrier for her retirement transition. "Part-time health premiums weren't subsidized, meaning COBRA-level costs would wipe out her part-time salary," Babu says. “She had to choose between staying full-time or retiring completely.”

The proposed schedule would have kept an experienced employee in place specifically to train junior workers, but the benefits structure made that arrangement difficult to sustain.

Under the Affordable Care Act's employer shared responsibility provisions, an employee averaging at least 30 hours a week or 130 hours a month counts as full time for purposes of the employer mandate. That definition doesn’t establish a universal eligibility threshold for disability, retirement, or other employer benefits, which can carry different requirements.

Medicare is generally available beginning at 65, but eligibility doesn’t automatically replace an active employee's group health plan. Under CMS's Medicare Secondary Payer rules, when a worker 65 or older has coverage through current employment at an employer with 20 or more employees, the group health plan generally pays first and Medicare pays second. At employers with fewer than 20 employees, Medicare generally pays first.

Workers 65 and older can remain eligible for an HSA if they haven't enrolled in Medicare and otherwise meet HSA requirements, but under IRS Publication 969, the HSA contribution limit falls to zero beginning with the first month of Medicare enrollment. That rule also applies to retroactive Medicare coverage; premium-free Part A can be backdated by as much as six months when someone enrolls after 65, according to Medicare's enrollment guidance.

Case by case doesn't scale

Most employers have no formal phased-retirement program. In its 2026 report, Transamerica found that only 39% offer one, while 59% do not. Among employers without a program, 24% say it is easier to address retirement requests case by case.

Jan Bias, executive vice president of People & Culture at Redstone Federal Credit Union, says Redstone has no formal phased-retirement policy. “It's hard to write policies around situations,” she says. “So we take it on a case-by-case basis.”

Several years ago, one of Redstone's accounting managers wanted to scale back ahead of retirement to spend more time with her ailing husband. “We couldn't leave her as accounting manager,” Bias says. Redstone moved her into what Bias calls a “helping role” and converted her to hourly status.

“We converted to a set number of hours per week, enough to keep her health insurance active,” Bias says. “She was able to decide on days that worked best for her.” The employee stayed on the reduced schedule until she retired.

Jamie Corby, managing partner of Corby & Associates and a former CFO, dealt with an employee at a US technology company who wanted to “move to reduced hours and keep the company's full benefits package.” Because the benefits structure covered full-time staff, Corby says, “keeping them on it meant an exception to the eligibility rules.”

“The cost sat well beyond the benefit itself,” he says. Because the employee kept the full package, “the company kept paying the employer share while salary and hours fell,” along with “extra payroll, HR and documentation work.”

At a UK employer of roughly 30 people where Corby was CFO, the company considered phased retirement for a small group of senior staff. Corby says they “modelled the individual economics and then the programme cost.” He recalls “about £8,000 to £10,000 of one-off HR, legal and policy work” and “£100 to £200 of incremental payroll administration per participant.”

“Benefits were the bigger variable by some distance, since everyone kept their healthcare and pension despite moving to reduced hours,” Corby says. “For an age-friendly or phased-retirement programme I'd want the incremental retention value set against the full cost of creating and maintaining that exception.” He adds, “Once you make an exception for one person you need a basis for deciding who else gets it,” Corby says.

Reduced hours belong in the headcount plan

Corby puts reduced-hours decisions in the same model finance uses for hiring, compensation, and restructuring. "A headcount plan is an employee-by-employee model," he says, where each person carries "an FTE percentage, salary, start and end dates and a burden for employer taxes and benefits." Moving someone from 1.0 to 0.6 FTE lowers salary and payroll tax immediately, while the benefits cost stays broadly where it was if the employee remains eligible. "Finance sees both sides," Corby says.

"What I have seen work is treating flexibility as a workforce decision made for an individual on business need," Corby says. The approach gives employers "a transparent answer at the employee level without a new benefit category that has to be designed, administered and defended on its own."

Corby also models the cost of losing the employee. For a sole engineer who understands a legacy system, or someone “who carries a critical customer relationship,” the cost of departure, Corby says, "runs wider than salary and takes in vacancy time, recruiting cost, management and training time and the revenue or service risk while a replacement gets up to speed."

As part of retirement transition assistance, 32% of employers encourage employees to participate in succession planning, training, and mentoring, according to Transamerica Institute. Babu's 66-year-old high performer asked to do exactly that, at 24 hours a week, six hours below the minimum her long-term disability policy required.

When those costs outweigh the expense of a reduced-hours arrangement, Corby says retaining that employee can make financial sense. “In that case I'd spend the money as a retention or transition arrangement for that individual, with no need to tie it to age,” he says.