Semi-retirement can offer important financial and lifestyle advantages to people in their 50s, 60s, and early 70s. By not quitting work completely, you can use the semi-retirement strategy to significantly increase your retirement income for when you do eventually retire full time, while also getting more time now to enjoy life and feel closer to being retired. By the way, “phased retirement” is another way to describe this strategy.
To make semi-retirement—and, in turn, retirement—work successfully for you, you’ll need to pay attention to a few items. By addressing these items now, you’re setting a strong foundation in place for your eventual retirement, one that could last as long as 30 years.
Here are five tips for planning a successful semi-retirement.
1. Make Your Semi-Retirement Work Enjoyable
As you consider what type of part-time work you can do in your semi-retirement, see if you can find work that continues the things you like about working, such as applying your skills and experience to helping people and enjoying social contacts. Or maybe you like work that engages your brain in ways your hobbies don’t. Also, look for ways to reduce or eliminate the things you don’t like about work, such as long commutes, office politics, or tasks you consider drudgery.
2. Find Ways To Reduce Your Living Expenses
When you’re fully retired and not earning income from working, it’s likely you’ll have less money to spend and will need to reduce your living expenses. Use the time you’re semi-retired to look for key ways you can lower your living expenses. Top candidates for expense reductions include your home and the cost of transportation. Think about whether you can downsize your residence and whether you can get by with one car, keep your older cars, or use public transportation more often.
3. Know How Much You’ll Spend On Health Insurance
Health insurance premiums and related out-of-pocket costs are the expense items that often increase the most for people who are no longer covered by a health insurance plan at work. Find out how much you’ll have to pay for insurance premiums when you’re semi-retired, particularly before you’re eligible for Medicare, when health insurance premiums can cost hundreds or thousands of dollars per month. You’ll want to build these costs into your budget now.
4. Don’t Count On Work Income Continuing Indefinitely
One common problem I’ve seen with older friends and relatives who are semi-retired is that they assume their income from working will continue indefinitely, but the reality is, they’ll reach an age when they can no longer work for income. If they can barely cover their living expenses with their income from working, then they’ll have a serious budgeting challenge when that income stops and they have to rely solely on funds from sources such as Social Security and investments.
Instead of ignoring the fact that you won’t be able to work forever, you’ll want to plan ahead for the day when you no longer earn income from working. How can semi-retirement help? By working fewer hours and earning less income from work, you’ll be able to determine just what expenses are critical and which can be eliminated. Take a hard look at everything you spend money on, and identify the less essential or “nice to have” expenses that you can cut back on when necessary.
5. Understand How Long You Need To Be Semi-Retired
One reason people choose semi-retirement over full retirement is that it’s a smart strategy for covering your expenses without having to start Social Security or tap into your retirement savings. This delay lets these retirement income sources grow until you eventually retire full time.
To make this strategy work for you, you’ll want to understand when these resources have grown to the point where your retirement income from all sources will cover the living expenses you expect to have throughout your retirement. To help with this, estimate your Social Security benefits at various ages in the future to help you decide when you should start your monthly benefits. But don’t wait later than age 70—it’s the latest age you can start Social Security benefits with the largest monthly income.
You’ll also need to select the method (or methods) you’ll use to generate retirement income from your retirement savings, since there are several viable methods that produce different amounts of retirement income.
My wife and I are in our early 70s, and we’ve successfully used the strategies described in this post. Like many other aspects of retirement, it was well worth the effort. By doing our homework and determining a financial plan that worked for us, we effectively paid ourselves hundreds of dollars per hour for the time we spent that helped build our lifetime financial security.
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