Does redness and peeling reduce over time while using Retin-A?

Absolutely!  In most cases if you stick with it your skin will acclimate and the redness and peeling will subside.  However, since it does such great things for your skin, many people over use it or use too high of a dose.  They get red and peely and are tempted to chuck the stuff.  The key with retin A is consistency over time.  Sometimes it is good to use it just once or twice a week and slowly build up tolerance--then you can increase frequency eventually to every night.  Another option is to use a retinol or retinaldehyde which is often can penetrate to the dermis without as much irritation to the epidermis.
All these "retin "formations are just different forms of Vit A.  Stick with it and you will reap the benefits over time.  Best of luck to you,
Dr. Amy