Semi-retiring can mean a variety of things, depending on your financial situation, lifestyle and other factors. You might cut back on your current work hours, or perhaps you decide to retire and then start a part-time job. Keeping one foot in the working world has its benefits, experts say.
“Semi-retirement can help keep you younger. Many people fail to fully appreciate the benefits of their career,” says Patrick Ford, director of wealth management at Brown Wealth Management in San Diego.
“Work can provide a sense of structure, purpose and challenge, which keeps one’s mind and body sharp. The key is to find the sweet spot with limited stress and the benefits of work,” he adds.
Regardless of how you envision semi-retirement, here are some tips from experts for navigating the transition with ease and ensuring you have enough income and savings to account for health care and other expenses.
What Is Semi-Retirement?
Semi-retirement is a situation in which you’re still working but you’ve cut back on your hours and perhaps transitioned to a less-stressful job.
Sound intriguing? Here are six strategies to consider if you’re going to try it.
— Make a plan.
— Reduce your financial footprint.
— Understand your health care costs.
— Consider a “bridge job.”
— Factor in taxes.
— Be flexible.
[Biggest Myths About Early Retirement]
1. Make a Plan
Before semi-retiring, consider your current finances and long-term savings plan. It’s a smart idea to meet with a trusted financial advisor to consider how your taxes, income and savings will be affected. Ask a lot of questions before leaving your full-time job, including:
— Can I afford to cut back on work?
— How long do I plan to semi-retire: indefinitely or for a fixed number of years?
— Once I retire, what will that look like?
— What will my budget be during semi-retirement?
2. Reduce Your Financial Footprint
When you are semi-retired, it’s a smart idea to reduce expenses. For instance, you could move from a large house into a condo or evaluate recurring expenses like streaming services you don’t need — and start whittling those down.
“My advice for those wishing to be semi-retired is to plan for it while working by contributing to your company’s retirement fund and by paying off as many things you can. For me, this was all our vehicles and several small bills,” says Carol Gee, a semi-retired freelance writer in Stone Mountain, Georgia.
3. Understand Your Health Care Costs
If semi-retirement means losing access to an employer-sponsored health insurance plan, research health care options.
“All too often Americans think that Medicare is free and covers 100% of medical expenses. This is not true,” says Danielle Roberts, a Medicare expert and co-founder of the Fort Worth, Texas-based insurance agency Boomer Benefits.
For instance, you’ll likely need to pay out of pocket for dental work, eye exams, hearing aids and long-term care.
According to Fidelity Investments’ annual Retiree Health Care Cost Estimate report, a 65-year-old retiring in 2023 can expect an average of $157,500 in health care and medical expenses throughout retirement.
Todd Youngdahl, senior vice president and financial advisor at Wealth Enhancement Group in Falls Church, Virginia, says that those planning to semi-retire should consider a health emergency fund.
“We recommend increasing liquid and safe cash reserves to 12 months of expenses prior to a semi-retirement,” he says.
[Read: The Highest Medical Costs to Expect in Retirement.]
4. Consider a ‘Bridge Job’
Paul Dillon, CEO of Dillon Consulting Services LLC, recommends taking on a transitional gig.
“For those who are considering retiring early and have an expertise, becoming a consultant is a tried-and-true retiree bridge career. Becoming a consultant on your own, a sole proprietorship, in your field of endeavor offers a chance to set your own hours and work at your own pace while making an income,” he says.
Whatever you do, try to make it interesting, he adds. “I firmly believe that one of the ways to be content in retirement or semi-retirement is to stay active and engaged with the world,” he adds.
Patrick Currall, a certified financial advisor at Signature Estate & Investment Advisors LLC, says going from full time to part time is “a fantastic way to transition toward retirement.”
“Take your time and slowly adjust your lifestyle,” Currall says.
5. Factor in Taxes
Before you make the transition to semi-retirement, you may want to consult a tax accountant or financial advisor.
“Semi-retirees can potentially hit a higher tax bracket due to Social Security and other retirement income sources in the form of required minimum distributions,” says Michelle Riiska, a financial planning consultant at eMoney Advisor, a wealth management software platform.
Also, since most semi-retirement professions require a 1099 form, it’s important to “remember to set up a side hustle tax account and make estimated quarterly tax payments to the government,” says John Bodnar, founder and CEO of Bodnar Financial Advisors Inc., and a certified financial planner in Florham Park, New Jersey.
You’ll also want to think about how early withdrawals from accounts such a traditional IRA, 401(k) or 403(b) might affect your income. If you start semi-retirement before 59 1/2, you could be socked with an early withdrawal penalty of 10%.
That said, there’s another benefit of keeping your money in your retirement accounts for a longer period of time: The interest, dividends and capital gains continue to grow tax-free.
[See: 7 New Taxes Retirees Face.]
6. Be Flexible
The wonderful thing about semi-retirement is that it’s nebulous. It’s a period that you can hopefully make whatever you want it to be.
“Semi-retirement is not always about working less. Sometimes it is about working differently,” says Jay Zigmont, a certified financial planner and founder of Childfree Wealth. “It may include starting your own business, picking a new encore career or just shifting your focus.”
And if you’re struggling to make it on a part-time paycheck, you can always ramp back up if and when needed.
Whatever your semi-retirement period of life looks like, the closer you can get to living the life you want is the goal.
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Tips to Successfully Semi-Retire originally appeared on usnews.com
Update 08/22/23: This story was published at an earlier date and has been updated with new information.
