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How to Semi-Retire Early: 5 Steps to Know


Semi-retiring early offers the best of both worlds: enjoying more leisure time while still maintaining a source of income and professional engagement. Achieving this hybrid lifestyle involves careful financial planning, assessing your current savings and investments, and possibly finding a part-time job or freelance work that aligns with your interests. When planning to semi-retire early, it’s also important to consider healthcare options and lifestyle changes to maximize your comfort.

A financial advisor can help you plan and save for retirement. Connect with a fiduciary advisor who serves your area.

What Does It Mean to Semi-Retire?

Semi-retirement is a lifestyle choice where individuals transition from full-time work to a reduced workload, allowing for more personal time. This approach enables people to enjoy the benefits of retirement, such as increased leisure and the opportunity to pursue hobbies, without completely stepping away from the workforce.

In semi-retirement, individuals often take on part-time roles, freelance projects or consulting work. This can provide a steady income stream while also keeping skills sharp and maintaining a sense of purpose. Financially, semi-retirement can offer a more gradual shift from earning a full salary to relying on retirement savings.

Step 1: Evaluate Your Finances

To embark on the path to semi-retirement, the first step is to evaluate your financial health comprehensively. Begin by examining your current income sources, including salary, investments and any other earnings. Understanding how much you currently bring in sets a clear foundation for future planning.

Next, take a close look at your monthly and annual expenses. Categorize your spending into essential and non-essential expenses. This will help you identify areas where you can cut back, thus increasing your potential savings. Knowing your spending habits will inform how much money you’ll need for a semi-retired lifestyle.

Additionally, you’ll want to conduct a thorough review of your assets and debts. Assess the value of your savings, investments and property. At the same time, tally up your debts, including mortgages, loans and credit card balances. Doing this will help you understand your net worth and determine if you’re financially ready for semi-retirement, or if additional saving and debt reduction are necessary.

Finally, identify potential income streams for your semi-retired years. This might include part-time work, passive income from investments or rental property income. Having a clear plan for continued income can make the transition to semi-retirement smoother and more sustainable.

Step 2: Find a Part-Time Employment

A woman who's semi-retired and works part-time as a consultant takes a virtual call from her inside her apartment.

The next step toward semi-retiring early lies in identifying part-time work opportunities. This will require you to assess your skills and interests. Reflecting on your career experiences can reveal roles that suit your expertise while aligning with your personal passions.

Online job boards and local community networks can provide a range of opportunities, from consulting positions to freelance work. Many companies seek experienced professionals for part-time roles that require specialized knowledge but not a full-time commitment.

Networking can also play a significant role in finding part-time work. Reconnecting with former colleagues and industry contacts can lead to job offers or valuable referrals. Additionally, joining professional organizations and attending industry events can open doors to potential opportunities.

3. Plan for Healthcare Costs

Securing healthcare coverage is an important aspect of semi-retiring early: Will you qualify for health insurance through the part-time work you will be doing? Or, will you need to pay for it out of pocket?

Without access to employer-sponsored insurance, you’ll need to explore private insurance options to bridge the gap until Medicare eligibility at age 65. This can be a significant expense, so you’ll want to explore all available options, including marketplace plans, high-deductible plans with health savings accounts (HSAs) and short-term health insurance.

Each option has different costs and benefits, so thorough comparison is necessary. HSAs offer a tax-advantaged way to save specifically for healthcare expenses, providing both immediate and long-term financial benefits.

4. Build a Budget and Income Plan

A man who's semi-retired teaches his granddaughter how to ride a bicycle.

To semi-retire early, you’ll need to develop a comprehensive budget and retirement income plan. Start by analyzing your current expenses and projecting future costs to ensure your income streams will meet your spending needs.

From there, create a strategic withdrawal plan to balance your income needs with asset preservation. Work with a financial advisor to outline how and when to tap into each income source, considering tax implications, withdrawal penalties and the sustainability of your income streams.

For example, if you plan to enter semi-retirement before age 59 ½, you may incur a 10% early withdrawal penalty when taking money out of pre-tax retirement accounts like 401(k)s and IRAs. Therefore, develop a strategy that uses other assets until you can withdraw penalty-free and are eligible for Social Security benefits.

Rental properties, dividend-paying stocks and bonds can offer additional revenue streams, especially for semi-retirees who haven’t reached age 59 ½. Annuities can also provide a steady income stream in semi-retirement. These financial products allow you to invest a lump sum in exchange for periodic payments, which can be structured for a specific period or your lifetime. There are various forms of annuities, such as fixed, variable, and indexed, each with unique benefits and risks.

5. Review and Adjust Your Plan

Financial planning for semi-retirement is an ongoing process. Regularly review your plan and make adjustments as needed:

  • Monitor investments: Keep an eye on your investment performance and rebalance your portfolio as needed.
  • Update your budget: Reassess your budget periodically to ensure it aligns with your current financial situation.
  • Stay informed: Stay updated on economic conditions and financial trends that could affect your plan. Being informed enables you to anticipate potential challenges and opportunities.

Staying proactive will help you prepare for any changes and stay on track towards your semi-retirement goals.

Bottom Line

Semi-retiring early lets you enjoy more free time while still earning an income. To achieve this, you need to carefully plan your finances, evaluate your savings and investments and secure part-time or freelance work that suits you. It’s also important to plan for healthcare and make necessary lifestyle changes. Regularly review and adjust your plan, and consult with a financial advisor to stay on track towards a secure and enjoyable semi-retirement.

Retirement Planning Tips

  • If you’re retiring early, chances are that you won’t be eligible for Social Security for at least several years. However, you’ll want to factor your eventual benefits into your income projections based on when you plan to collect. SmartAsset’s Social Security calculator can help you estimate how much your benefits will be, whether you collect at 62 or delay them until 70.
  • A financial advisor can help you navigate the pain points of retirement planning. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.

Photo credit: © Ryan, ©, ©