Whether you've been dreaming of retirement since your early 20s or you want to work as long as you're physically and mentally able, the reality of retiring often comes as a surprise to those who've clocked out for the final time.

There's a lot to deal with, no matter how long you've been planning for the big day. You may struggle to switch from work mode to relaxation, or feel anxious about having time on your hands that you're not sure how to fill. Whether you're a construction worker, salesperson, or school principal, you may experience a loss of identity. You may also feel ill-prepared to deal with the financial realities of retirement.

This is where phased retirement comes into play.

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How phased retirement works

Phased retirement is a structured way to ease out of full-time work rather than stopping abruptly, giving you a chance to transition into retirement gradually. It may involve systematically cutting the number of hours a week you work until you're ready to retire full-time, or you might move into a job with less responsibility as you phase out of the workplace.

While it's easy to identify the benefits to you as an employee, companies also benefit when long-term employees take part in phased retirement. It's during this period that employees often move into mentorship or knowledge-transfer roles, passing on their know-how and insights to younger or less experienced colleagues.

Creating a plan for phased retirement

Not all companies offer a phased retirement program, so your first step is to speak with your company's human resources department. If your company is on board, find out how pay, work schedule, duties, and performance expectations will change. While you're at it, ask about how reduced hours (if that's the path you're taking) will affect your pension, health insurance, and employer contributions to your retirement plan.

If you're moving into a part-time position, you'll also need to ask about how part-time status will affect vesting schedules and any withdrawals from your retirement funds that may be necessary.

What if you're self-employed or your company doesn't have a program?

If you're self-employed, phased retirement may be a matter of cutting back on the number of hours you work each month until you're comfortable with moving into full-time retirement. Whether the process takes months or years is up to you.

If you work for a company that doesn't offer a formal phased retirement program, it may be willing to help you ease your way into retirement by allowing you to work fewer hours or take on a different, less high-pressure job. Let the company know that you're happy to use your years of experience to help develop less experienced employees.

If phased retirement is a possibility for you, it may be the bridge you need between full-time employment and enjoying the next chapter of your life.