Navigating Semi Retirement with a trusted Financial Advisor

Shelly Young embraces her semi-retirement, relishing the freedom it offers. Balancing her speech coaching business with a flexible schedule allows her to tailor work around her lifestyle, granting the liberty to travel and structure each day on her own terms.

"I work part-time and remotely, catering to fantastic clients while taking vacations whenever I want," she shares. "I'm doing what I love."

Young is part of a trend where people have moved away from full-time work but haven't fully retired. Semi-retirees work less, earn money, and have more time for family, hobbies, volunteering, and travel.

However, successful semi-retirement requires careful planning. It's crucial to start considering and saving during wealth-building years, leveraging employer benefits and the power of compounding. Drawing from her experience as a former school speech pathologist, Young emphasizes the importance of foresight: "I chose that job knowing I'd need strong benefits, like a pension, for my future."

Here are 5 steps to consider to help you achieve your semi-retirement bliss.

Assess Your Long-Term Financial Requirements 

There are various options to consider when thinking about semi-retirement. You can work fewer hours with your current employer. Alternatively, you can explore money-making activities such as blogging, freelance writing, or consulting.

While this shift can promise better work-life balance, underestimating your future financial needs might mar the tranquility of retirement. Understanding what you sacrifice by leaving full-time work, especially with employers offering robust benefits, is crucial.

Full-time jobs often come with a host of perks. These include employer contributions to retirement funds, comprehensive insurance coverage, health savings accounts (HSAs), and potential profit sharing. So, there is risk in walking away from full time work.

Prepare Strategically While Still Employed Full-Time

To counterbalance these potential losses, those eyeing semi-retirement often need to make significant adjustments earlier in their careers.

Many opt to maximize contributions to health savings plans and 401(k)s before transitioning. They tighten spending, pay off substantial debts, and sometimes downsize their homes. Some generate passive income through rental properties, dividend stocks, or online businesses with advertising revenue. For instance, in 2019 at age 39, Christina Lewis sold her possessions, embraced a nomadic lifestyle, and downsized to minimal belongings.

Now semi-retired, she runs an editorial services business she launched in 2017. With hired contractors delivering services to clients, she manages projects remotely, leveraging the $127,000 profit from her house sale. Additionally, she earns royalties from past work and dividends and interest from investments.

"I'm actively pursuing my life goals, exploring the world, learning, and forming incredible connections," she shares. "This unconventional lifestyle has led me to meet remarkable people I wouldn't have encountered in a more traditional setting."

Strategize Your Future Income Streams

While Young embraced significant change, many semi-retirees aim for a smoother transition without upending their current lifestyle.

Regardless of whether your dream involves globetrotting or nurturing a backyard garden, the initial step remains consistent; organize yourself and devise a plan.

Begin by assessing your current income, savings, spending patterns, and debts. Decide on the duration of full-time work before semi-retirement. Also, determine the length of time you want to spend in semi-retirement before fully retiring. 

Then adopt a forward-thinking approach. Project the changes in expenses from now until retirement. Will your mortgage be paid off? Will your children become financially independent?

Take it a step further. Gauge the funds necessary during retirement and identify the income sources available during those years. Juggling these numbers might seem daunting, but don't let it deter you from planning your move to semi-retirement.

Seek guidance from a financial professional. A financial advisor can scrutinize your data and test various scenarios. They can analyze investment mixes and discuss future expectations, accounting for longevity and potential market fluctuations.

Market volatility is always there, so ensure your financial plan accounts for unpredictable market years and be mentally ready.

Evaluate Present Expenditure

When approaching semi-retirement, your ability to withdraw from retirement accounts may hinge on your age and financial circumstances. It's worth noting that these accounts might need time to grow, and penalty-free withdrawals usually kick in at age 59½.

Consider Dan's case in our hypothetical scenario: He plans to scale back from work to prioritize personal pursuits.

His financial advisor devises two scenarios for him: semi-retirement at 55 and 58.

Encouragingly, his retirement seems on track, enhancing his chances of success. Upon semi-retirement, Dan can cease contributions to his retirement accounts.

If he delays accessing Social Security until 67 and begins withdrawing from retirement funds, he stands a strong chance of securing a fully funded retirement covering all essential expenses. However, the key challenge will be curtailing spending during the semi-retirement phase.

Semi-retirement might slightly reduce his Social Security benefit. If he stays in his job until 67, he will get about $33,500 per year. If he semi-retires at 55 or 58, he will get $31,500 or $32,000 respectively.

Typically, discretionary spending comprises about 20% of total expenditure. Dan's projected spending during semi-retirement might exceed his anticipated earnings, potentially necessitating a substantial shift like downsizing.

Explore Healthcare Choices

When considering semi-retirement, healthcare coverage becomes a pivotal aspect. Familiarize yourself with the available health coverage options before departing from your current employer.

You have three options for getting insurance. First, you can choose to get insurance through your spouse's job.

Second, you can keep your employer's plan for 18 months with COBRA. Lastly, you can sign up for a plan on the Affordable Care Act marketplace. Private insurance remains another viable alternative.

If you want to work less but keep your job, you can ask about programs such as phased retirement. These programs allow you to maintain your health insurance coverage. Consider working part-time at a local coffee shop or in a bookstore or garden store, engaging in activities you enjoy while securing healthcare benefits.

Consider Your Motivation

Before transitioning to semi-retirement, it is important to reflect on oneself and do the necessary financial preparations.

Identify your why. What drives your desire for semi-retirement? What goals and purpose propel you? Comprehend what you're retiring to, not just from.

Young found enhanced flexibility and freedom during her transition, which recent life experiences validated as the right choice.

The pandemic underscored the importance of semi-retirement for many people. As they reflect on losing friends and family to COVID, cancer, suicide, and heart attacks over the last few years.

The abundance of loss across ages 32 to 79 highlighted life's brevity. You should wholeheartedly embrace anything that genuinely excites or interests you, respectfully declining engagements or opportunities that lack passion. There's no time for pursuits that don't resonate.

Bottom Line

Embarking on your journey toward semi-retirement involves a strategic approach. To have a fulfilling semi-retirement, determine the amount of money required, identify its sources, and develop smart spending habits. Additionally, understanding retirement savings and healthcare options is crucial. It is also crucial to understand retirement savings and healthcare choices.

Ultimately, the key is to adopt a purpose-driven approach. Understand what makes you want semi-retirement and match your goals with the lifestyle you want. Finding and pursuing what truly resonates with you is key to a fulfilling semi-retirement journey.

Sources: 

https://www.fidelity.com/learning-center/personal-finance/semi-retirement

Disclosures:

This information is an overview and should not be considered as specific guidance or recommendations for any individual or business.

This site may contain links to articles or other information that may be on a third-party website. Advisory Services Network, LLC is not responsible for and does not control, adopt, or endorse any content contained on any third-party website.

This material is provided as a courtesy and for educational purposes only.  Please consult your investment professional, legal or tax advisor for specific information pertaining to your situation.

These are the views of the author, not the named Representative or Advisory Services Network, LLC, and should not be construed as investment advice. Neither the named Representative nor Advisory Services Network, LLC gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Please consult your Financial Advisor for further information.