Semi-Retirement and How it Can Benefit You

Navigating the path to retirement can be challenging, especially for those feeling overworked but want to retire in a good financial place. Semi-retirement can allow individuals to gradually reduce work hours and responsibilities while still receiving the benefits of employment.

Almost everyone I speak to about retirement planning wants to know how to retire early or as soon as possible. Many are overworked, stressed, burnt out, and looking for any possible source of relief. However, many of those same individuals are not quite in a position, financially, to retire “cold turkey,” or the way that most do.

Many people envision retirement as a complete end to their career, transitioning from a full-time job, working 40 hours per week, to an immediate full-time retirement, where they work zero hours per week.

However, a strategy that often gets overlooked is adding a semi-retirement phase where they can gradually reduce their work obligations over time. This approach can offer a blend of benefits, including continued income, reduced stress, and ongoing purpose, making it an attractive option for many.

What is Semi-Retirement?

Semi-retirement involves reducing work hours or responsibilities while still maintaining some level of employment. This approach leverages the expertise and experience individuals have built over their careers, allowing them to ease into retirement rather than stopping abruptly. This phased retirement can be particularly beneficial for those not quite ready to retire fully but eager to scale back their workload.

One reason this strategy is so overlooked is that people only look at the financial side. They say to themselves, “Why would I cut my hours and make a fraction of what I’m currently making?” They rationalize that if they can just stick it out for a few more years, making their full salary, they’ll be better off.

Others decide they simply cannot endure and decide to retire before they truly should. This leads to a stressful retirement, where financial concerns linger and potentially never go away.

This is why the concept of semi-retirement comes in. Imagine two alternatives: working full-time in a job where you’re miserable for three more years or negotiating a work situation that comes with fewer hours and more freedom, along with less pay, for six more years.

Yes, working in a part-time capacity for longer may not be attractive, but what we’ve seen is that given the right environment, semi-retirees are often rejuvenated by the benefits of a lighter load. Plus, jumping into semi-retirement gives you a taste of retirement now, as opposed to having to wait years down the road.

Financial Benefits of Semi-Retirement

For those willing to work in a part-time capacity beyond their original retirement target, one of the most significant advantages of semi-retirement is the financial impact. Instead of going from a full salary to zero income, semi-retirement allows for continued earnings, which can substantially benefit your portfolio.

• Reduced Portfolio Withdrawals: Continuing to earn a portion of your salary reduces the need to draw from retirement savings. For example, if you continue to earn $50,000 annually for five more years instead of retiring outright, that’s $250,000 less withdrawn from your savings. This can enhance the longevity of your retirement funds due to the compounding effect over time.
• Health Insurance: Maintaining employer-sponsored health insurance can be a significant financial relief, especially for those under 65 who are not yet eligible for Medicare. Paying out-of-pocket for health insurance can be costly, and staying on an employer’s plan can save thousands of dollars annually.
• Retirement Benefits: Continuing to work part-time may allow you to continue contributing to retirement plans and potentially receiving employer matches. This continued contribution can further strengthen your retirement savings.

Emotional and Psychological Benefits of Semi-Retirement

Beyond finances, semi-retirement offers emotional and psychological advantages. Many people enjoy the sense of purpose and routine that work provides. Suddenly, stopping can lead to feelings of boredom and a lack of direction. The emotional and psychological benefits that come from semi-retiring or working in a part-time capacity can result in multiple non-financial benefits, including:

• Continued Engagement: Staying partially employed keeps your mind active and engaged, providing a sense of purpose and accomplishment. It can prevent the cognitive decline that sometimes accompanies full retirement.
• Reduced Stress: By stepping back from a full-time role, you can reduce stress and avoid burnout while still enjoying the aspects of your job you love. This balance can improve overall well-being and life satisfaction.
• Social Interaction: Workplaces often provide important social networks. Continuing to work part-time allows you to maintain these connections, which can be crucial for mental health and social engagement.

Planning to non-financial side of retirement is just as important, if not more important, than planning the financial side. Without a day-to-day plan of how you fill your time, you can easily end up lost after retirement. A lack of engagement, purpose, and fulfillment, can cause mental, emotional, and physical problems for those without a plan.

How to Determine When to Semi-Retire

For those interested in pursuing semi-retirement, it’s important to approach the transition strategically:

• Assess Your Financial Situation: Work with a financial advisor to understand the impact of reduced income and continued contributions on your retirement savings. Use retirement planning software to visualize different scenarios.
• Communicate with Your Employer: Discuss your desire for semi-retirement with your employer. Propose a plan that highlights your continued value while addressing your needs for reduced hours or responsibilities. Many employers value experienced employees and may be open to flexible arrangements to retain their expertise. Be sure not to shoot too low here. Consider your “dream” scenario, which includes all the parts of your job that you enjoy and excludes the parts you don’t care for.
• Explore New Opportunities: If your current employer cannot accommodate semi-retirement, consider consulting, freelancing, or part-time roles in your industry. These options can provide the flexibility you need while utilizing your skills and experience.

Is Semi-Retirement a Good Option for You?

Semi-retirement can be a valuable strategy for those wondering how to retire early. Semi-retirement can allow them to transition into retirement gradually, rather than all at once, when they may not be financially or emotionally ready to do so. By maintaining some level of employment, you can enjoy financial stability, reduced stress, and continued engagement. Whether you want to start this phase early or extend your working years, semi-retirement offers a balanced approach to achieving a fulfilling and financially secure retirement.

Want more help? Let’s chat.