The Everything Problem

Since the beginning of the New Year I’ve been rolling around the idea of semi-retirement in my head.  It’s an option that I can say that I haven’t done too much work on before and I’m starting to understand why.  In normal retirement type planning you have a lot of variables to deal with like how much you spend, savings rate, inflation rate, rate of return, when you want to retire….you get the idea.  All of this items require some thought and decisions about each variable.  When looking at semi-retirement a lot of those values become less firm.  I’m asking myself new questions like: when do I want to start semi-retirement, when would I like to switch to full retirement, how much should I assume I make during that period, does my wife want to work at all during this…the list goes on and on.  The problem is semi-retirement can be just about anything or everything you want.

So trying to define a scenario has so far been a much bigger problem than I initial thought possible.  Yet out of this infinite possibility matrix I’m starting to define some rough guidelines to help me hash out a scenario.  So in no particular order here are some of my initial guidelines:

  • I can start semi-retirement any time once the mortgage is paid off, so in three years time.  Yet I would like to have a cash reserve to cover most of our basic expenses (~$18,000/year) so I will likely work for a few years beyond that.  Also I’ll need to build up a bit of a cash reserve that I’ll need for regular full retirement later on.  So I’m thinking about three or four years of work beyond that which would put me at about 38.
  • I want to keep my ‘required’ working salary in semi-retirement to a lower level (~$10,000/year) so if one of use can’t work for some reason that we won’t end up with a major problem down the road.  We just deal with having less money for those extra things in life.
  • My wife wants to keep working a bit once we switch to semi-retired.  She would likely just stop taking new young kids and focus only on the older ones so as they age she will slowly get out of the business as the kids get older and no longer need care.  The implication of this decision is we won’t even consider a move to a smaller house until our youngest son is in high school, which is about when I turn 44.
  • Our full retirement will not start until I turn 60 or if we end up with the money to do it sooner.  So if we earn more than we need in the semi-retired phase it can be rolled over to accelerate the full retirement date if we want.
  • My work in semi-retirement will likely be more than just a single job and will depend heavily on what interest me and what opportunities come up.  I’m currently not planning on doing any additional engineering work, but I suppose I could consult a bit if I want.  It would depend on the project and who I would be working with.

So perhaps a good question to ask here is why bother with looking at semi-retirement at about 38 when you can early retirement at somewhere between 43 to 45?  Well the reality is I’ve always planned on working a bit post early retirement, by going semi-retired I’m just actually putting in that income into the plan for the first time.  So by considering that concept I just take advantage of that income to leave my day job a bit sooner.

So have you ever considered a semi-retirement?  Is so, what did you include in your scenario? Or what would you change about my guidelines above?

9 thoughts on “The Everything Problem”

  1. Hi Tim,
    Although I’ve set my financial scenario to fully retire with a bare bones budget, I would rather semi-retire as well.

    Some of the things that I’ve had to consider are keeping my skills up-to-date and my network active too in case I want to pick up some work down the road.

    I’m torn between doing something that’s interesting but not well paid or staying in my career path that is well paid. The downside that I’ve found is that it’s harder to find consulting or temporary jobs in my field that require less than a year commitment (which would be ok if it ran across tax years to split your income a bit…) 🙂 However, it only takes a month or so to hit that $10k/year threshold if you pick up a good consulting job.

    Going with semi-retirement is much more efficient when it comes to your #1 expense – which is probably taxes, or at least mine is. It seems silly to work my butt off for a couple of more years and pay crazy taxes when I can cut out 30+% in taxes by working less.

    One of the things that’s probably a bit harder for us left-brained people to deal with is living with uncertainty and being okay with knowing that you can’t plan everything out into 5, 10 or 20 year goals/plans with semi-retirement. Opportunities will come up that you couldn’t have planned for as well as unexpected expenses. If you have built up a reputation of being a good worker and have some contacts, lots of unplanned opportunities will come along that you’ll have to say no to, especially in the beginning of your semi-retirement. I haven’t even stopped working yet (will be doing that this week) and already I’ve been offered a one year mat leave coverage that I’m probably going to say no to.

  2. Having become depressed and burnt out from the awful commute (made worse by my company’s relocation from Manhattan to Jersey City, New Jersey) and full-time work, I was able to semi-retire when I was 38 back in 2001. My company let me do a mostly telecommute deal while I worked 20 hours per week.

    My pay was reduced by nearly 40% after taxes but I was able to keep my health insurance and my vesting in the retirement plan as well as the valuable and fast-growing Employee Stock Ownership Program (ESOP).

    I was still earning much more money than I needed to live on and added to my 401(k) as well as my non-retirement investments. My company match was reduced, so I boosted my own contribution to make up some of the difference.

    But what was important was that I got my life back and was no longer depressed – for a while.

    This arrangement did not last long because my company pulled the plug on open-ended telecommuting 2 years later. I could still work P/T but had to put all my 20 hours in at the NJ office. This was a terrible policy change, one I knew would cause me to quit at some point.

    After 4 years of going to the office 3 days a week, I reduced it to 12 hours a week (2 days) in 2007. My pay took another drop but it was still enough to live on, despite having to pay for my own health insurance via COBRA (for 18 months). I stopped adding to my 401(k) because I was now ineligible for the company match and needed more current income to meet my expenses.

    But working those 17 months saw my ESOP continue to grow, so when it hit the $300k mark (as I predicted it would), I retired in late 2008 at age 45 and cashed it (not the 401(k)) out. I live on the dividends from the ESOP and still turn a surplus overall.

    Being single with no children makes budgeting pretty easy. Being debt-free, my expenses are very low and predictable.

  3. Good term ‘infinite possibility matrix’. Reminded me of the ‘infinite improbability drive’. I can now picture a hyperspace bypass to your retirement goals.

  4. Our goal is not semi-retirement, but to get me away from my full time job and shift work.

    If all goes well our mortgage will be fully paid off in 3.5 years and I will be able to quit my job.

    This will enable to to pursue my business and or find employment that is flexible enough to have the same time off as my spouse. She is a teacher and has all summer off.

    I am looking forward to it!

  5. Personally, I would like a job that I could work all months except the summer (I’d like to play more golf in the summer). I’m looking into tax preparation or part-time book-keeping in order to pay expenses. Tax season ends just about the same time as golf season starts, which would be ideal.

  6. A big problem for me is that I have TOO MANY options. Our mortgage will be paid off in two years and I could stop working at that point… my wife could theoretically keep working – you see, she’s one of those weirdos that actually ENJOYS her job. 🙂 But she’s not really keen on supporting me in my life of leisure – so we have decided that we will both keeping working for 5 years after our mortgage is gone… that should allow us to save about $60k per year… that amount will nicely top up the assets we already have. Crunching some numbers, at 45 years old, using the trusty 4% withdrawal rule, we should be able to tap about $50000+ from our portfolio. But honestly, we could probably live quite comfortably on half of that.

    This scenario is made possible by adhering to a dedicated “LBYM” and “DINK” lifestyle. It really works.

  7. jacqjolie,

    I’ve had similar thoughts. Do you always do interesting work or do you do some that just pays really well so you only have to do a little of it? In the end, I might do both. Keep a job which pays really good, but little hours and then do fun stuff with the rest of my time.


    Thanks for the story. I can’t wait to put up your guest post this week to share the rest of of the story with everyone.


    Ha! I didn’t even think about that one, but you are right. I’m now getting flash backs of HGTG. *grin*

    No Debt Guy,

    Ugh, shift work. I would be looking forward to the end of that as well. Keep up the good work!


    Actually not a bad idea. Tax season is short and in winter so you would leave your summers free.

    Jon Snow,

    There is nothing wrong with likely your job, goodness knows my wife likes her job most days. It sounds like a plan, but perhaps you can suggest you only work three years after your mortgage is gone. $50,000+ is getting a bit much when you can live on half of that.


  8. Reading these responses seems all too familiar with my own thoughts. I’ve always been in a rush to retire, save as much as possible while spending as little as I can. Then this past fall we had a baby. While I love my current job, I definitely do not have the passion I once had for it and have chosen not to renew my contract this year.

    I’ll be staying home in the fall after my wife returns to work so that I can take care of our daughter. Will this help us retire sooner? No, but it will keep me happy which is what should be driving us all.

  9. The most conservative financial plan I’ve ever heard is: have twice as much as you think you’ll need, then plan to continue working in some capacity for the rest of your life.

    If you have skills, why not contribute to society? And if your skills are valuable, why not get paid for it? I think semi-retirement is a great plan. Here’s mine.

    I’ll work until I am able to retire, probably age 42. A couple years before that, when the kids are in school, my wife plans to go back to university to become a teacher. I’d also like to become a teacher, so that we can be a positive influence for children.

    The fact that we will have retired means that we don’t have to accept dictatorial pronouncements from above. (“You think I should do exactly as you say? Why, you might fire me?”) We can do it for the love of the kids, which is how I think it needs to be.

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