You don’t have to have a 6-figure income, save >50%, or work until your late 60s to have a fulfilling retirement. In fact, semi-retirement options are most beneficial for people with moderate incomes. It can even help you exit your career earlier.
A 2018 Gallup poll found “41% of nonretirees… plan to retire at age 66 or older.”
There are of course many factors driving this retirement age up: health care cost, student loans, consumer debt, low savings rates, sub-optimal investment styles, and more. We’ll get into each of those topics together in future posts.
But, wow! If time is our most valuable resource, full-time work until age 66 is not an acceptable plan. Though that is what’s “normal.”
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Advantages of semi-retirement
You may have heard that you can’t access your retirement savings until you’re at least 59-1/2. That’s not necessarily true.
There are several ways to access your retirement accounts early while avoiding the early withdrawal penalty.
Plus, semi-retirement offers the significant advantages of flexibility, feasibility, and fulfillment.
So, let’s jump in and discuss how you can plan your own semi-retirement strategy.
Semi-retirement: you don’t have to work full-time until your late 60s
What is considered semi-retired?
The FIRE (Financial Independence, Retire Early) movement fights against this societal norm by encouraging high savings rates early in life. The goal of the movement is to allow full early retirement. And I think that’s amazing!
However, many early retirees have found themselves unsatisfied in their retirement, even depressed at their perceived lack of purpose. Traditional retirees too have to address the transition and often find it challenging.
In fact, some FIRE retirees go back to work part-time doing something they like in order to feel that sense of purpose — there’s certainly nothing wrong with that. But on the other hand, if their extra earnings from the part-time work lifestyle could have been accounted for before they reached FIRE, they could have retired even earlier.
Semi-retirement is a period of life where you’re intentionally working part-time so that you have more time available for other pursuits.
It can and should be financially sustainable — which means that you may be partially funding your expenses with existing investments, while also accounting for later in life when you’re not able to work.
There may be an age or health level at which part-time work is not feasible or desirable, and I understand that’s a reality. It’s prudent to have proper insurance coverage and extra savings in place. But if you’re “retiring early,” wouldn’t you rather retire sooner and work part-time doing something you love? You can escape the cubicle even earlier, and begin doing work you’re actually passionate about.
How to enjoy semi-retirement
In a recent interview with Micah McDonald from the financial blog Deep Value ETF Accumulator, I asked Micah to describe his current semi-retirement lifestyle.
“My experience being semi-retired has been very enjoyable. The best part of being semi-retired is that I’m not rushed. I drive slower; I walk slower; I pursue things that I want to do as slowly as I’d like to without much concern for having to get it done before I go back to work.
When I’m working, I still have plenty of time after work to do some things I like to do such as running my blog, communicating about finances on social media, going to the gym, reading books and listening to podcasts and music.
When I’m not working, I spend a lot of time doing nothing important, and that is relaxing. I also do a lot of other things when I’m not working like running outdoors, hiking, swimming, golfing, taking care of our house and lawn, taking care of the cars, spending time with the wife, kids and grandkids, going out to eat, taking scenic drives in the car, participating in my local church, reading, etc.”
This is the what makes semi-retirement so attractive: you can work a moderate, healthy amount while also spending time in the other areas of your life that are most fulfilling.
This strategy can be successful whether you want to be a semi-retired MD, teacher, plumber or any other career path.
Semi-retirement can take several forms. It can be a short-term break from work, switching to a lower-paid career because you no longer need the money of the original job, choosing to only work seasonally, or retiring to do part-time work that you truly enjoy. The latter is what I’ll focus on for the rest of this post.
Average age for semi-retirement
Popular online searches for semi-retirement yield milestone target ages of 40, 50, and 60. Those are all feasible options!
The fact is, there’s no set age for semi-retirement. The timing is personal and will depend on your own core values and goals, as well as your financial situation.
I’ll walk through the big steps here, below. You can also download the free semi-retirement planning workbook to examine your personal financial numbers! If you still have questions, feel free to contact me or meet with a professional, fiduciary financial advisor.
How to plan for semi-retirement — the 3-step strategy
Step 1: Work full-time while saving intentionally for an exit.
The first step to semi-retirement is similar to FIRE, in that you’re saving to open the door for the future. Consider the example of Jim below, who wants to FIRE and not work in retirement.
Jim wants to retire at 55
As of the fourth fiscal quarter of 2018, the average U.S. worker made about $46,800 per year. Let’s call the worker with that salary “Jim”. Let’s say Jim is 28, and he hasn’t started saving for retirement yet. But he just heard about FIRE and he’s ready to change his lifestyle.
Jim wants to FIRE because he really dislikes his 9 to 5 job. He wants to be working 0 hours per week in retirement because he feels burned out right now.
For the rest of this post, I’m going to use an investment growth rate of 6%. The US stock market averages about a 10% growth rate long-term and inflation averages just over 3% annually, so using a 6% rate will conservatively account for that inflation. Since I’m using this 6% growth rate, all future investment values will be approximately in 2019 dollar value/buying power.
“How much will I need to retire?” — Traditional FIRE
Perhaps when Jim retires, he does not expect to spend the equivalent of his working salary, as many people do. Let’s assume he wants to live on $35,000 adjusted for inflation each year.
To determine how much you need to live on in retirement, there are a number of factors to consider. We explore this in another post, but assume Jim has calculated that $35,000 is what he needs. (Note: If you’d like to walk through your own retirement planning numbers, check out the free downloadable workbook!)
At the 4% safe withdrawal rate (you can read more about the “safe withdrawal rate” here and in the free workbook), Jim will need $875,000 saved:
$875,000 x .04 = $35,000
Remember, if Jim is retiring early, he won’t have social…