Most people just let life happen to them.
You want to plan for a successful semi-retirement, an alternative to the default script of traditional retirement. But let’s be honest, it can be overwhelming.
Let’s cut through the overwhelm with an overview of the top five things to explore for a successful semi-retirement.
I’m not a financial adviser, so please don’t take any of this for financial advice. This is meant to be purely educational and motivational!
1. Know Your Why
Begin by getting clear on why semi-retirement appeals to you.
Determine your why first before you create your financial plan. It can motivate you to keep going in the face of setbacks or when you have difficult decisions to make. It’s your anchor for when life tosses you around and pushes you in the wrong direction.
Make sure that your values match those of semi-retirement because a life out of alignment with your core values will lead to regret.
For example, independence and freedom are top values related to the semi-retiree lifestyle. Achievement at all costs and competition to have “all the toys” are not compatible values. If you’re not sure, this intentional living article has some exercises to help you with this.
Another reason to know your why is because there are costs or trade-offs to semi-retirement.
For example, when you semi-retire, you’ll see the immediate benefits of less stress and more time to do what you want in your life.
But you’ll also need to deal with the disapproval of people who don’t understand what you’ve done, who ask, “why would you leave a perfectly good job?” You’ll also need to deal with the internal emotions that come up, like when you see former co-workers get promoted or when you think about all the money you didn’t earn.
If you know your why, you can deal with these internal and external challenges. It’s the first step to a successful semi-retirement.
2. Know Your How
It’s essential to know how you’re going to earn your part-time income BEFORE you jump in.
If you enjoy the work you do now, make sure there are part-time opportunities in your field. Depending on your occupation, finding part-time professional employment might be tricky. The best way to do this is to talk with your current employer when you’re ready and ask if there are part-time versions of the job you’re in.
When I left my financial analyst role, I would have loved to go part-time and earn half my salary for half the time, but it just wasn’t an option. For some careers, part-time work isn’t available.
Another issue with part-time jobs is that most assume you’ll have a lower skill level—so they pay significantly less than full-time positions. So be careful of any assumptions that you’ll earn the same hourly rate unless you can find real marketplace examples.
An alternative to a part-time job is to start your own business.
You could create a business to help people, using the skills and abilities you’ve developed over a lifetime and earn money in the process.
Start a business doing work you enjoy. It isn’t easy to do when your full-time job eats up most of your time, but a side money-making project could do wonders for your savings rate and maybe become a full-time adventure.
A business with passive income streams would mean that you put in the work up front, then do less work later, a perfect semi-retired business.
Another alternative is to freelance. Examples are consulting work, design work, or writing.
Freelancing could give you flexibility in your schedule.
You could alternate between full-time and part-time work. Begin by working part-time, and if you needed extra money, you could kick it up to full-time. You could even work seasonally, putting in the hours in the winter so you could enjoy your summers.
3. Know Your Point of Enough
Determine your point of “enough.” How much money do you need to feel comfortable? How much additional money do you need to add in some luxuries?
Get financial clarity around your point of enough. You need to know your expenses or how much money your lifestyle requires. A spending plan or budget to make sure you don’t overspend is helpful here.
When you quit full-time work early, you may be locking in a lifestyle, so consider this carefully.
If you’re creating a semi-retirement plan based on spending less money—TEST IT OUT first before you make major lifestyle changes.
Take a hard look at whether you’re willing to change if you currently spend above your means. You’ll need to accept that at least some frugality is required. The less you need to live on, the easier it is to reach semi-retirement.
If you can ditch all debt, even mortgage debt, your level of freedom expands tremendously. Downsizing can help.
You also need to check if you’ve saved enough for future retirement, either now or projected into retirement age. If you’ve been saving right along, you may have enough saved already. But if not, can you still save money the money you need with your semi-retiree income?
4. Know Your Financial Life is in Order
A key to a successful semi-retirement is to know your numbers.
You might invest in financial advice, like from a Certified Financial Planner (CFP). Having an objective eye on your finances is useful. A good planner can see blind spots you may not have thought of, like when or if, to buy long-term care insurance.
Even if you get professional advice, think of semi-retirement as entering a marathon.
You can hire a coach, but the day-to-day training is up to you. You still need to run on your own, and you need to eat healthy food without someone standing over you.
In semi-retirement, your planner provides guidance, but you need to watch your expenses and keep your finances healthy by not overspending.
Decide How You’ll Handle Health Insurance Costs
Don’t skip this. Health insurance is expensive, and as of right now, you need to wait until 65 years old to qualify for Medicare.
Review the Rules for Social Security
Social Security may not factor in your plans, but if it does, here are two things to consider:
If you end full-time work early, you’ll receive less for Social Security benefits later. Right now, Social Security payments are based on your highest 35 years of earning.
However, given my Gen X cynicism that I’ll even receive full Social Security benefits, this concern is low on my list!
If you decide to collect Social Security payments before full retirement age while still working, you won’t receive full benefits.
Here are the details directly from the Social Security website:
“If you are under full retirement age for the entire year, we deduct $1 from your benefit payments for every $2 you earn above the annual limit. For 2021, that limit is $18,960.
In the year you reach full retirement age, we deduct $1 in benefits for every $3 you earn above a different limit. In 2021, this limit on your earnings is $50,520.”
However, you don’t lose this money—it’s delayed until your full retirement age.
Again, from Social Security’s website, “We will recalculate your benefit amount to give you credit for the months we reduced or withheld benefits due to your excess earnings.”
5. Know You Have a Plan for Full Retirement
I know this is how to plan a successful semi-retirement, but don’t ignore your traditional retirement plan in the process.
There will be a time in your life when you don’t want to work at all. Or worse, you may not be able to work. Make sure you have enough saved for this scenario.
Let the older version of you have the option to relax and enjoy life.
Even if you’ve calculated that you’re Coast FI, reassess those calculations yearly. Because all your careful calculations about how much you should have when you reach the traditional retirement age can get blown up.
Neither retirement nor semi-retirement is a “set it and forget it” strategy.
There’s the danger that your investments will return less than you projected. Stock market returns could be negative or stay flat for a decade. In that case, if you don’t continue to save money, you could fall short of what you need by the traditional retirement age.
A significant benefit of semi-retirement is that by keeping your skills relevant, you’ll be able to ramp up to full-time if you need to.
A financial professional can help you with the numbers, but they can’t predict the future. Keep your expectations for your financial plan reasonable.
Any financial plan is only a guide, not a guarantee.
Plan for a Successful Semi-Retirement—The Balanced Lifestyle
Creating a plan for a successful semi-retirement is almost the same as preparing for traditional retirement. It can get intimidating. But if you pay attention to your numbers and stay flexible, it is far safer than “regular retirement.”
Instead of sacrificing your life now for the promised land of traditional retirement, you maintain a balance.
Because there’s danger in tolerating a job you dislike, one that consumes most of your waking life and leaves only a paycheck in return.
There’s risk in sacrificing your present life for a future that isn’t even guaranteed to happen.
Semi-retirement is a blend of work and leisure that can lead to a calm, meaningful, and fulfilling life.
Take your first step today by getting clear on your why.