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.”
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.
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!)
$875,000 x .04 = $35,000
Remember, if Jim is retiring early, he won’t have social security or Medicare to rely on when he starts his retirement.
Jim is aggressive, so he’s able to save 30% of his income towards his goal. Traditional retirement advice is to save 10-15%, and on average, Americans save <6% of their income — so Jim is doing a very good job. (Especially for his income level.) At the same time, though, FIRE movement followers are sometimes able to hit savings rates north of 60%, so 30% is not unreasonable.
With 30% savings of his $46,800 salary, Jim has actually been living on $32,760 before taxes, so $35,000 in retirement is doable (it’s even a slight increase in lifestyle from his working years).
Then let’s use 6% growth rate so we’re accounting for inflation.
Jim’s FIRE scenario
|Average annual growth rate||6%|
|Target portfolio value||$875,000|
|Years needed to reach this portfolio value||26.7|
So, in this scenario Jim would be able to FIRE around the age of 55. Compared to 66, this is very good!
Step 2: Leave full-time work so you can work part-time at something you enjoy, while letting your investments grow.
Now, consider an alternative example.
“How much will I need to retire?” — semi-retirement
Pam is in Jim’s same present scenario — identical income, savings rate, annual retirement expenses, and age.
Pam knows that she won’t feel fulfilled if she does zero work in her retirement. So she plans to work 20 hours per week at the local library in her retirement, making $20 per hour. Just because she enjoys doing that. Or she could be teaching guitar lessons, tutoring 4th graders, working at her church, or doing something else she feels passionate about. You get the idea!
If she takes 4 weeks off each year during semi-retirement (she’s retired after all, so we’ll give her a break), that’s 48 weeks per year. So, Pam makes $19,200 per year in her semi-retirement.
It’s possible that a semi-retiree could earn significant money with even fewer hours of part-time work. I’ll use Pam’s hourly job though, since it’s a very attainable example.
Pam plans to have expenses of $35,000 adjusted for inflation each year in her retirement (the same as Jim), but she’s making $19,200 of that from her part time work. So her investments only need to account for $15,800 each year at a 4% withdrawal rate. Her “magic” number, then, is $395,000.
Pam’s semi-retirement scenario, high (30%) savings rate
|Average annual growth rate||6%|
|Target portfolio value||$395,000|
|Years needed to reach this portfolio value||16.97|
So, Pam can semi-retire at 45, 10 years earlier than Jim can fully FIRE.
Here’s the real kicker. Consider if Pam wants to enjoy life a little more in the present. So, instead, she lowers her savings rate to 20% of her income.
Pam’s semi-retirement scenario, medium (20%) savings rate
|Average annual growth rate||6%|
|Target portfolio value||$395,000|
|Years needed to reach this portfolio value||21.66|
Even at the 20% savings rate, Pam is able to semi-retire 5 years earlier than Jim can with his 30% savings rate.
The beauty of semi-retirement is that you can spend time doing work you actually enjoy, have a moderate (not ultra-aggressive) savings rate, and get away from the 9 to 5 grind sooner. In the same plan. It’s a real win-win-win.
All of this is assuming that Pam stops saving and investing further. If Pam makes income from her own writing on the side, gets an inheritance, or downsizes her house to access extra equity, she could semi-retire even earlier.
The other positive is that, while Jim has decided on zero work in retirement, Pam can work more hours or fewer hours depending on how her portfolio is performing to help compensate.
Or what if Pam pays off her mortgage during that 20 year period? Her expenses to cover in retirement would be even lower. She could semi-retire sooner or just enjoy life more in her retirement!
Would you feel more confident about being able to throw a paper airplane 25 yards while outdoors, or fly a drone the same distance? Flying the drone, right? If you throw a paper airplane, there’s a huge variety of possible outcomes. Maybe it’ll go too far, crash right away, or start out right but be hit with a gust of wind. Traditional retirement and full FIRE ask you to take huge leaps with little ability to adjust, like tossing the paper airplane. The semi-retirement strategy gives you nuanced control along the way.
Certainly, if your income is higher, you have a spouse that also works, or you have lower expenses than Jim or Pam, you could semi-retire at an even earlier age.
Step 3: Plan for later in life when you are no longer interested in or able to work part-time.
Eventually, Pam may not be able to work so she’ll need to account for that in her plan. She’ll need a financial nest egg she can live on for that period of her life. For this exercise, assume the age when she becomes uninterested in part-time work is 75.
Here are two ways Pam can be prepared for Step 3:
1) She can withdraw less than 4% from her current portfolio during semi-retirement. Either by earning more from her part-time semi-retirement work, or by spending less.
For example, if Pam can limit her withdrawals to only 2% from her portfolio during her working semi-retirement, her portfolio will be growing at 4% still (the 6% post-inflation growth rate minus her 2% draw down).
So, when Pam is 75, her portfolio value will be over $1 million. During her nonworking years, she can live on $40,000 annually without drawing down on her portfolio principal with the 4% SWR.
2) She can save extra in Step 1 and not withdraw from that portion during Step 2; let it grow!
Consider if Pam had an extra $100,000 from Step 1. To accomplish this, she could have started her savings earlier, worked a few years longer, or earned a higher-paying job.
If Pam let that $100,000 grow at 6% from age 50 (from the 20% savings rate scenario) to 75, she will have an additional $429,187 in savings.
Combined with her $395,000 portfolio from above, Pam can still live on ~$33,000 each year through her non-working years!
The big conclusion: don’t be so conservative with your saving or projections that you start your retirement 20 years late. Pam can retire at 45 instead of 66 by living a reasonable lifestyle and by doing part-time work she enjoys later in life.
But what if you’re already older than Jim or Pam, or a 20% savings rate isn’t immediately possible for your family? That’s okay! The semi-retirement or FIRE mindsets can still be valuable for you. Any steps you take moving forward will help you build wealth and have more freedom in retirement.
Key considerations when developing your semi-retirement strategy
When you’re planning and running your numbers, there are some key cost drivers you’ll want to keep in mind. These can vary greatly depending on your personal situation and goals.
Consider each of these expenses as you brainstorm for your semi-retirement:
- Giving and volunteer work
- Time with friends and family
Health and insurance, in particular, can be a significant expense.
When I interviewed him for the personal finance online community post, Clint Haynes, Certified Financial Planner said, “
Could a semi-retirement strategy be a win-win-win in your life or for your family? What are your biggest questions and concerns? Let me know, in the comment section below.
Want to see a graphical comparison of FIRE and the semi-retirement strategy? We’ve done that — check it out here!
Note: annual compounding used for calculations in this post, to err towards conservative calculations