In our working years, the thought of waking up everyday with complete control of our time, endless relaxation, and minimal responsibilities seems like a dream, a dream commonly referred to as retirement. A time where we are able to do what we want, whenever we want, and with whomever we want. Once we reach this point in our lives, the pinnacle has been reached and it is all downhill from here, right?
Wrong. The human brain has a fascinating ability to adapt to circumstances and our level of happiness always reverts back to a stable level. Think about a goal you’ve had in the past, either personal or professional, where you believed that once you achieved this goal (marriage, promotion, salary, etc.) life would be better or easier. A common example is income. “If I could just make 20% more, I’d be able to do …… which would make life better or easier.” And then inevitably what happens when your income increases? Initially, there is a boost in enjoyment. You’re able to buy the new car, take that vacation, pay off debt, or any other goal you may have, but after time the ‘shine’ of that additional increase in pay wears off. Your level of happiness is the same as before, and thus you proclaim again “If I could just make 20% more…” This is known as the hedonic treadmill. (See Michael Kitces article titled “3 types of Retirement and Their Different Savings Strategies” for more information)
The concept of traditional retirement is no different. We conjure up ideas in our minds of all leisure and no work, traveling at will or hitting the golf course every morning, and believe once again “If I could just reach this stage, life will be better or easier.” But once the newness wears off and you fall into your new routine, many people succumb to feelings of:
- Lack of purpose
- Loss of Identity
- Need for social interaction
- Fear of uncertainty
Much of this may be attributed to the fact that many people decide to retire based on financial, rather than psychological, factors. Sure, you absolutely need to be in a place financially where retirement makes sense, but you also need to be in the right place emotionally. The ability to work can provide purpose and a sense of identity. It can facilitate social interactions and nurture relationships which are at the core of our happiness.
This is where the concept of Semi-Retirement comes into play. Semi-retirement is the idea that while you are able to fully retire, you choose to stay engaged either through your current work, pursuing another endeavor (starting a business, part-time work, consulting), or possibly ‘working’ as a volunteer.
The benefits of semi-retirement are three-fold. You are able to work because you want to, not because you have to. You could explore part-time opportunities with your current employer, or if your pre-retirement job was less than favorable and/or caused unnecessary stress or dissatisfaction, you could look into using your skills for consulting work. This time could provide an opportunity to learn new skills, or start that business you’ve always wanted to but never made the leap.
These new endeavors also provide a much needed outlet for social interaction and the opportunity to meet new people and develop new relationships. Remaining involved and doing work you feel provides a benefit not only to yourself but to others, whether this be paid or volunteer work, can create a sense of purpose which should be what we are striving toward in our life.
These aforementioned benefits don’t even take into consideration the financial aspects of semi-retirement. The more income you earn and the longer you earn, even if part-time or reduced, decreases the amount of withdrawals you will need to make from your portfolio which can extend your retirement savings and make your portfolio withdrawals less susceptible to market volatility.
Another option with semi-retirement is the ability to retire sooner than projected. As mentioned above, if you are earning an income and reducing your withdrawal amounts annually, you may not need to have accumulated as much as you would have in a traditional retirement. This could mean you might be able to reduce your savings rate in your pre-retirement years to enjoy life more now, or ‘semi-retire’ earlier with the savings you have amassed. Of course other factors can come into play too (think health insurance or a possible reduction in social security based on earnings) which can affect the viability of this concept, but if this type of retirement resonates with you it should definitely be worth exploring.
However you view retirement and regardless if you have 5 or 25 years until you plan to reach this goal, you need to discover your purpose. Why do you do what you do every day? What are you really working towards? Our brains are hard-wired to always be working towards ‘more’, but without an end goal this pursuit of ‘more’ is fruitless and can lead to discontentment and unhappiness, as no matter how much we have accumulated we will never be able to consume enough or buy our way to fulfillment.
There are a number of resources out there which can help you find your why or discover your purpose, but be sure when utilizing these exercises that you put time and thought into your answers. Your reasons and purpose can change overtime as well, as our interests and life situations rarely stay stagnant.
For questions on how semi-retirement can play a factor in your life, please feel free to reach out to us via our website.
Andrew Langdon is a fee-only financial planner based in Peachtree City, GA serving clients in the Greater Atlanta area. FivePoints Financial Planning provides financial planning and investment management services to young families and pre-retirees who are looking to achieve financial freedom. Services are offered on a project or ongoing basis.
Disclaimer: This article is provided for general information and illustration purposes only. Nothing contained in the material constitutes tax advice, a recommendation for purchase or sale of any security, or investment advisory services. I encourage you to consult a financial planner, accountant, and/or legal counsel for advice specific to your situation. Reproduction of this material is prohibited without written permission from Andrew Langdon, and all rights are reserved. Read the full Disclaimer.