Semi-retirement has significant advantages for your financial security, health, and enjoyment of life. It’s a powerful strategy to consider as you approach your retirement years, or even if you’ve recently retired. Let’s take a look.
What Is Semi-Retirement?
Semi-retirement is when you transition from full-time paid work to part-time paid work instead of retiring completely and doing no work at all for income. Semi-retirement is also referred to as phased retirement, gradual retirement, or partial retirement.
If you’ve recently retired from full-time work but are considering going back to work part time, then semi-retirement can be a form of “unretirement.”
If you’re interested in semi-retirement, you’ve got a lot of company. More than half (52%) of middle-class workers say they want to work in some way after they retire, according to the 24th Annual Transamerica Retirement Survey.
To meet your goals and needs, you can be flexible with designing your semi-retirement. It could take one of several forms:
- Regularly scheduled part-time work for your current employer or a new employer
- Seasonal employment, for example an accountant who only works during tax season
- Work as a contractor for an employer
- Starting your own business
You can build on your current skills, experience, and contacts, aka an encore career. Or you can start in a new direction. It’s up to you!
What Are The Pros Of Semi-Retirement?
There can be many advantages to semi-retirement. You might:
- Need the additional income to support the life you want.
- Enjoy working and want to continue engaging with your colleagues.
- Need health insurance, at least until age 65 when you’re eligible for Medicare.
- Have projects in mind that you still want to complete.
- Want to share your knowledge with younger workers and act as a mentor.
What Are The Cons Of Semi-Retirement?
The most obvious disadvantage to semi-retirement is that you’ll still be working in some way, which can take time away from travel, hobbies, or interests that you might want to pursue.
Another disadvantage is that someday, you’ll either be unable to continue working or you won’t want to work anymore. This can lead to a mistake that many people make regarding semi-retirement: They become dependent on the working income for supporting their life and assume the income will continue indefinitely.
Unfortunately, most people will reach an age when they can no longer work for income. As a result, it’s very important to plan ahead for that day. Here are three ways to strategically use your working income to pay for:
- Living expenses while allowing your retirement resources to grow. For example, by continuing to work, you can delay starting Social Security benefits until the age that maximizes your lifetime income. You can also delay starting any pension until it’s no longer subject to early retirement reductions. Or you can allow your retirement savings to grow with investment income.
- Expenses that will go away or reduce in the future, such as paying off a mortgage or expenses for children who aren’t yet living independently.
- “Nice to have” living expenses, such as money for travel, hobbies, and gifts to children and grandchildren. When your working income stops, in theory, you can reduce or eliminate those expenses.
Who Should Consider Semi-Retirement?
You might be a candidate for semi-retirement if:
- The pros listed above significantly outweigh the cons for you.
- You haven’t saved enough money to retire full time. In this case, semi-retirement can be a strategy to help you enjoy your life more while improving your financial security.
- You really enjoy your work but don’t want to continue working full time.
- You subscribe to the “use it or lose it” philosophy for the longevity of your mind and body.
What Steps Can You Take To Plan For A Semi-Retirement?
Here are five steps for planning a semi-retirement:
- Prepare a financial analysis to see how you can strategically use the income from working, as described previously.
- Understand the implications regarding health insurance prior to age 65 when you’re eligible for Medicare. Will you receive medical insurance from your employer if you’re working part time? Or will you need to pay more for medical insurance, in which case you’ll want to reflect that in your retirement budget.
- Be on the lookout for alternative working arrangements with your current employer, other employers, or for opportunities to start a business.
- Think about the things you like and dislike about working. Can you look for semi-retirement work that continues the things you like and reduce or eliminate the things you don’t like?
- Make sure you’re healthy and have enough energy to continue working.
If you’re married or have a partner, be sure to include them in the planning discussions.
FYI: I’ve been semi-retired for 18 years now, and I’m still going strong at age 71. Semi-retirement helped keep me engaged and active in the work force, and I avoided burning out if I had continued to work full time. I’ve enjoyed my work and interacting with like-minded people who are passionate about helping Americans plan for retirement. And my wife and I have used the extra income to help fund travel and spoiling our grandchildren, without needing to dip into our retirement savings. It’s been win-win-win!