Once upon a time, traditional retirement had a well-defined path. You’d toil away at your job until 65. Then your employer graciously provided a pension, which, combined with Social Security, rewarded you with a life of leisure.
Yeah, that’s no longer a thing, at least for most of us.
Add in the longevity bonus, where we may live longer than ever, and we need alternatives.
Let’s talk about semi-retirement.
Note: I’m not a financial adviser, and this is not financial advice. It’s meant to be purely educational and motivational!
What is Semi-Retirement (the Updated Version)?
Semi-retirement is an early retirement lifestyle where you work part-time on purpose. You don’t grind it out in a full-time job and try to live in the margins of your day. Instead, semi-retirement means work doesn’t dominate almost every waking hour of your life.
Semi-retirement provides a balance so you can enjoy the benefits of working without the massive time suck most full-time jobs require.
It gives you flexibility in how you design your day.
Early retirement sounds terrific, and it’s the goal of the Financial Independence, Retire Early (FIRE) movement. However, many early retirees don’t want to stop working entirely.
Because when it’s done on your own terms, there’s a multitude of benefits to working.
Besides the obvious financial benefits, work provides healthy mental and emotional challenges. Working keeps you engaged with the world and can provide social opportunities.
In semi-retirement, you may need to earn money to cover part of your living expenses, but it has a different feel. It’s part of a plan. It’s part of intentional living.
The world of retirement and retirement transitions is changing, along with the definitions of these terms.
A previous definition of semi-retirement was when you had to work part-time because you couldn’t find full-time work. Or worse, when you were forced into early retirement because you lost your job. Those situations are financial emergencies, not lifestyle choices, and not what I’m writing about here.
The updated version of semi-retirement is a lifestyle choice for when you are ready financially, emotionally, socially, and mentally.
Who Is Semi-Retirement For?
Semi-retirement is for anyone tired of the corporate treadmill. Whether it’s possible for you right now depends on how much you have saved for retirement and how much risk you’re willing to take if you don’t have enough saved yet.
After COVID, we’ve seen the risk of focusing on work so narrowly that we miss our lives, lives that could be cut short at any moment. Planning for your financial future is a balancing act between financial security and personal satisfaction. Yes, you want to save as much as possible for your future. However, you want to enjoy life now too!
Let’s start with three scenarios where semi-retirement could be a safe possibility for you right now.
Early Retirement Ready
A quick rule of thumb is to take your total retirement portfolio, or all the money you have saved and invested, and multiply it by 3% to 4%.
So if you had a million dollars, you could safely withdraw anywhere from $30,000 to $40,000 a year for your living expenses.
If the amount of money you could safely withdraw each year is enough to cover your cost of living, you’re financially independent (FI).
Semi-retirement is a safe option, and you have maximum flexibility as far as how much or how little you want to work.
This is identical to the “ideal version” of Barista FIRE.
If you’re a younger early retiree, consider semi-retirement to keep your skills up to date. It can help you deal with life’s not-so-pleasant surprises if (or when) you need to earn additional money.
Coast FI is a point where you’ve saved enough for retirement that if you let your money grow untouched, it could support you when you want to retire. You have enough money and enough time to increase your portfolio to the size you need it to be when you decide to stop working. (thanks to compound interest).
The trick is you still need to work for your living expenses, even if they are reduced. But if you could earn enough part-time to cover your costs, here’s your potential path to semi-retirement.
There is the option to draw down your portfolio for living expenses but be aware that this will change your Coast FI “number.”
This scenario is when you start or buy a small business—one where you have a degree of control over how much work you do.
The ideal would be an online business with some passive income streams. For example, owning a popular niche site with affiliate links or selling digital products.
This is limited only to your imagination and what you can sell in the creator economy.
You could begin by using the extra business income to plump up your retirement portfolio. Or you could build your business with a mix of active and passive income streams so it could eventually provide full-time earnings with part-time work.
If this appeals to you, and you can make the transition from employee to entrepreneur, starting an online business could be a fantastic way to get to semi-retirement faster.
What Are the Risks of Semi-Retirement?
Don’t forget that the number one asset you have is your ability to earn money. You don’t want to risk going part-time too soon and then not having enough money if you don’t want to work at all when you’re older. Or worse, if you can’t work, like for health reasons.
There is a real danger that if you downshift your career to part-time work, you’ll have a hard time returning to a full-time job if you need to or want to. Potential employers want economic dependents who rely on their salaries and may view working part-time as “lazy” or “unmotivated.”
For this reason, if you intend on being an employee, give this some careful consideration. A far better route is to become self-employed, where clients will judge you by your results and what you can do for them, not a resume! Or investigate the creator economy, where you can earn through meaningful creative work.
Some people shouldn’t consider this lifestyle at all—check out this article to confirm it doesn’t apply to you.
What Are the Benefits of Semi-Retirement?
Here are the top four reasons to consider the semi-retirement lifestyle.
1. Semi-Retirement Provides Relief from 24/7 Full-time Jobs
For full-time employees in the U.S., the 40-hour week is a relic of the past. The new normal is around 50 hours a week.
The pandemic allowed people to work from home, and there are positives to this. However, it also means that for many employees, work never ends. The lines between home and work got erased, leading to excessive levels of stress.
The default script is to endure this for over 40 years of our life. Tolerate jobs that chew up vast portions of our lives with the promise that if we save and invest enough money, we can completely stop working around age 65. However, the monolithic goal of traditional retirement is a relic of the past.
Perhaps it’s time to re-think the idea of enduring work that never ends for the promised land of a retirement that may not exist.
2. Semi-Retirement Gives You Options Sooner
Semi-retirement can allow you to “retire” earlier than the traditional age of 65 years old. The trade-off is if you aren’t financially independent, you’ll continue to work part-time past 65.
But if you can find part-time work you enjoy, work that’s challenging but not stressful, working past 65 would be beneficial anyway. Or you could create a business you enjoyed. Ideally, one with passive income streams, since the time to keep it running would be minimal, yet it would keep your skills and mind sharp.
Think of how much less of a nest egg you’d need if you had enjoyable part-time work. If we use the often cited 4% safe withdrawal rule, this means that for every $1 you earn (after taxes), you’d need $25 less in your nest egg. Earning $20,000 a year means you’d need $500,000 less in your portfolio to meet your living expenses.
If we face futures where we may be cognitively sharp until well past 80 years old, do we really think we’ll be happy with full-time leisure beginning at 65 years old?
3. Semi-Retirement Provides a Smoother Transition to Full Retirement
Going from full-time work to a traditional retirement can be pure bliss for some. But for most people, it can be shocking when a formerly large part of their identity vanishes. After the honeymoon period, it can be a nightmare, especially for “type-A” people.
But working part-time can provide the challenge you need while preparing you for eventual retirement.
If you love what you’re doing, who says you ever even have to retire?
The new retirement is all about transitions. Even if you have the money and you could afford to retire fully, you may want to consider doing something part-time first. It’s the difference between gently coasting to a stop versus slamming on the brakes.
4. Semi-Retirement is Safer Than Full Retirement
Early retirees, do yourself a favor. Keep your skill up to date and be prepared to go back to full-time work if necessary. It’s your “sleep at night while the market is crashing” backup strategy.
Don’t forget that you’re paid for enduring volatility as a stock market investor, and no one knows what the heck the market will do next.
The “safe” alternatives, cash or bonds, barely pay much. A million dollars held in cash at 1% interest pays a whopping $10,000 a year. Money in these safe alternatives is guaranteed to lose spending power each year, thanks to inflation being higher than the interest paid out.
By earning some income, instead of entirely depending on your portfolio, you’d have much more control over your future. If the market tanks, you can ride it out without as much angst as you would experience if you depended on it for every dollar. This would allow you to keep more in riskier but higher-paying investments.
Keeping your skills fresh and up-to-date provides massive peace of mind. You know you could earn more money if you need it.
What is Semi-Retirement? A Healthy, Balanced, Flexible Lifestyle!
Semi-retirement allows you to slow down and enjoy life. You’ll have time to exercise, time for the important relationships in your life, and you’ll have time for those hobbies you’ve been neglecting.
Working at least part-time avoids the lack of purpose that can plague early retirees. Or, if you don’t have enough saved yet, this lifestyle could throw you a lifeline if you’re willing to work past the traditional retirement age.
It’s a middle ground that’s healthier for you mentally and emotionally and gives you more opportunities for social interactions.
The book Work Less, Live More: The Way to Semi-Retirement by Bob Clyatt is a bit dated (published in 2007) but is one of the best books on the topic of semi-retirement if you want more.
Or, if you want a shorter next step, click here for the top 5 things to explore for a successful semi-retirement.