In a world where the traditional concept of retirement is evolving, semi-retirement has emerged as a popular alternative to full retirement. In fact, according to a recent study by Paychex, as many as 1 in 6 retirees are choosing to continue working in some capacity. Semi-retirement offers retirees the opportunity to maintain a sense of purpose and stay active while allowing them to enjoy leisure activities.
But before you decide to take the plunge into semi-retirement, there are several important considerations to keep in mind. To make a well-informed decision about semi-retirement, consider the following points.
When transitioning to semi-retirement, a thorough evaluation of your financial situation is needed. If you have planned well, you may have enough income to support your lifestyle with various income streams, such as pensions, social security, investment income, deferred compensation, and retirement plans. Many individuals in this situation choose employment not out of financial necessity but as a way to keep active and engaged, with the added perk of having a little extra ‘pocket change.’
A trend we’ve seen with our clients in the post-Covid era is a desire to retire early from their current career and work longer in a part-time job they find more enjoyable. For example, let’s say your planned retirement age is 65. After running an analysis, we determine that you could semi-retire at 63 and work part-time until 70. Would you do it? Many of our clients are considering this as an option. When asked why they would want to work longer, the most common answer is, “I just need to get out of the rat race. I don’t dislike working; I dislike the stress.”
However, if you plan on collecting Social Security before full retirement age and are generating an income through employment, you will need to consider how your income will affect your benefits. For 2023, the annual income limit for social security is $21,240. For every $2 you earn above the limit, Social Security will deduct $1 from your benefit payment.
Health Insurance and Benefits
One of the most important considerations before embarking on semi-retirement is its effect on health insurance coverage and other benefits your employer offers—especially if you are considering entering semi-retirement before age 65. If you plan to reduce your hours at your current job, will your health insurance and other benefits still be available? If you plan to leave your current job and work somewhere else part-time, what benefits will your new employer offer?
Some options for replacing health insurance coverage include utilizing a spouse’s coverage if they are still working, utilizing your company’s retirement health benefits if you have access, and investigating the options for private health insurance. Another option could be using your employer’s COBRA coverage to bridge the gap to Medicare eligibility, depending on when you plan to transition to semi-retirement. Our advice here is always the same: investigate every option so you can compare the premium costs, out-of-pocket costs, and access to doctors.
Lifestyle and Activities
Semi-retirement opens doors to explore new interests or hobbies or even pursue part-time work in a field that resonates with your values or has long captured your imagination. Reflect on the activities you’d like to engage in during your semi-retirement years. Whether traveling, volunteering, starting a small business, or spending more time with family, having a clear vision of your desired lifestyle will help you make the right decisions as you transition.
Social and Emotional Considerations
Work often provides a sense of purpose and social interaction. As you contemplate semi-retirement, consider how this change might impact your sense of identity and social connections. Even if your current job is stressful, will stepping back mean losing that sense of significance you’ve grown accustomed to in your professional life? Retiring from a full-time job can also mean losing the structured routine that your work provides, along with intellectual stimulation and continuous learning opportunities that come with new challenges. Engaging in social activities, networking events, or joining clubs can help you maintain a fulfilling social life.
In addition, consider the fact that you’ve been at work for over 40 hours a week for the past few decades and, if you decide to fully retire, will be spending a lot more time with your spouse. Working a job, even part-time, will provide time for both of you to adjust to spending more time together.
Flexibility is key when transitioning to semi-retirement. Life is unpredictable, and circumstances can change. It’s important to remain adaptable to new opportunities and challenges that may arise. If necessary, be prepared to adjust your plans and have contingency plans to address unexpected financial or personal changes.
Navigating Semi-Retirement Successfully
Semi-retirement can offer a fulfilling and balanced lifestyle for those seeking a new chapter in their lives. However, it’s a decision that requires careful consideration of financial, lifestyle, social, and emotional factors. By thoroughly assessing your situation and priorities, you’ll be better equipped to make an informed choice that aligns with your aspirations and ensures a prosperous semi-retirement journey. Remember, the key is to plan ahead, be flexible, and embrace the possibilities that semi-retirement can bring.
Strata Capital is a wealth management firm serving corporate executives, professionals, and entrepreneurs in the New York Tri-State Area, focusing on corporate benefits and executive compensation. Co-founded by David D’Albero and Carmine Coppola, the firm specializes in making the complex simple to ensure clients feel confident in their financial decisions. They can be reached by phone at (212) 367-2855, via email at firstname.lastname@example.org, or by visiting their website at stratacapital.co.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
This material was prepared by Crystal Marketing Solutions, LLC, and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate and is intended merely for educational purposes, not as advice.