Ever Consider Semi-Early Retirement?

One of my biggest goals in life is to have the freedom to retire early in life, if I so choose. I plan to be financially independent by 40 years old, earning passive income from investments I’m making now. I’ve said many times in the past that this is no noble goal, and may not necessarily be a better way to live than someone who chooses to spend most of their money “living for today”. There is no doubt that I am delaying gratification. But, what if there was a way to balance earning yourself more time and living in the moment? What if you could have significantly more time to do the things you’d like, but not have to sacrifice for years on end toward that goal of more time? This is where the idea of semi-early retirement comes into view.

What is semi-early retirement?

My take on this idea is that one would try to amass a significant asset base that can generate passive income, but not have to work so long, and live so frugally, so that the passive income exceeds 100% of known expenses. For instance, generating 50% of your expenses with passive income may be what you want to target here. In order to pay the rest of your expenses you work part-time, take on intermittent projects, perform consulting work on a need-to basis or even try to find work you really enjoy for a reduced income. This plan could allow you to reach some of your goals much earlier in life and perhaps earn yourself significant flexibility without having to delay gratification too far into the future. The asset base not only provides you a source of passive income in these examples, but also provides a “cushion” just in case things do not go as planned.

Why consider this idea?

The idea of semi-early retirement or “partial financial independence” could provide you the flexibility to have a lot more time on your hands to spend with loved ones, relax at the beach, build things, write a novel or whatever else you want to do with your time. Perhaps even some of these hobbies would produce some kind of small income. That would be even better. This flexibility could come much earlier in life than if you were to try and aim for passive income that meets 100% of expenses. In exchange for gaining access to this type of flexibility earlier in life you would have to find a way to pay for any expenses your passive income does not cover.

Let’s take a look at my own situation

My income and expenses have been well documented on this blog. My expenses average somewhere near $1,200 a month. In order to generate passive income that meets this expense level, I’d have to have $360,000 invested at a 4% safe withdrawal rate. $360K is a lot of money, and with my middle class income and savings rate I’d need at least ten years to build a portfolio of that size. My journey, as it stands, is planned out to be a 12 year journey starting from 28 years old and ending at 40. But, what if I could cut that journey in half?

Let’s say I only want to cover half my expenses with passive income. That means I’d have to have $180,000 invested, at a 4% SWR, in order to generate $600 per month of income. Based on what I have now, I could likely reach that figure in less than five years. At that point, I’d only need to earn $600 per month from outside sources, such as paid part-time employment. I know that the unemployment rate is historically high, but earning $600 per month shouldn’t be terribly difficult. Even in this environment, part-time employment providing that type of income should be relatively easy to find.

What does it all mean?

Having a portfolio that provides passive income to meet half my expenses in less than five years from today means that I could potentially get away from the grueling 50 hour workweek I have now and move into something that I might enjoy quite a bit more with a much less demanding schedule. That means at 35 years old I could potentially work 20 hours per week or less for the rest of my life. Or, perhaps I could work seasonally…or just work really hard for 3-4 months per year. This could provide me significantly more personal time than I have now.

Boredom

One reason one might want to consider this idea is the likelihood you might get bored once you reach early retirement. Being retired at an extremely young age will likely put you in a precarious position. You’ll likely be home when all your friends and family are at work. Fighting boredom might be something that will be a daily battle, and something that you might not be used to. And, if you do find yourself bored what are the odds that you look for some type of paid employment? Paid employment, at the point of early retirement, will provide you with not only a way to fight boredom but also as a method to acquire additional income to fund some of the desires you may have above and beyond living frugally.

If you’re the type of person that will be extremely bored without employment, the argument could be made that early retirement of any form is probably not something that you’re going to seek out anyway. The flip side of that coin is that you likely do not know how you’ll respond to early retirement until you’re actually there. If you think it’s likely that you’ll seek out some type of part-time income source even if your investments provide you more than 100% of your expense level, then maybe getting out of the rat race early and doing something that provides you more flexibility might not be a bad idea. Basically, if in the end you’re going to work part-time anyway, and it’s a foregone conclusion, should you not skip ahead to that conclusion? It’s an interesting question. It’s also something that I don’t really have an answer for.

Partial Financial Independence

Although semi-early retirement isn’t something that’s talked about often, the idea of being able to work part-time indefinitely might be something that’s attractive to some. The idea of this partial financial independence gives you flexibility as to what kind of employment you choose to engage in, gives you flexibility to choose your own schedule and gives you a lot more time to spend on personal interests. You get most of the rewards of early retirement, but much earlier than you would be led to believe possible.

Will it work for you?

This lifestyle wouldn’t work for all. But, if you’re already living fairly frugally, are aiming for retirement extremely early in life, do not identify yourself through your job, do not particularly enjoy your career and/or the time it requires to be proficient at it, would love more time than you currently have, are a flexible and open minded person and willing to work extremely hard for 5-10 years of your life this might be an idea to consider.

What about you? Ever consider semi-early retirement?

Thanks for reading.


Photo Credit: digitalart

Comments

  1. says

    I saw your blog mentioned elsewhere and subscribed a few weeks ago.

    I’m not sure what my goal is exactly. I’m investing in dividend stocks, but it seems too slow. And, seeing the 180k to get 600 a month is disturbing to me. I could invest $1,000 a month, but I don’t want to do that for 15 years. (I know, this assumes absolutely no growth, but it is simple.)

    I have an apartment building, that if I can keep it rented out fully with minimal repairs, nets 800 a month. My hope is to get a few more of those and be retired. Banks have tightened up on their generosity though, despite low rates.

    I like the part time work thoughts. It is definitely something to think about, it beats slaving away 60 hours a week.

    Thanks for the post, it has me thinking now.

    • says

      I think you have to consider that if you have multiple apartment buildings that you are managing, repairing, getting new tenants, etc. That in and of itself is a part time job.
      That would be Early Semi-Retirement

    • says

      Tom,

      Thanks for stopping by and I appreciate you subscribing.

      Investing in rentals is certainly a way to go and there are many people who have become wildly successful doing it. Of course, the recent real estate crash just proves that you shouldn’t be too leveraged when investing in this manner.

      A valid point was given above that when you have rental properties it can certainly turn into a part-time job as management duties call. This, of course, can be mitigated by hiring a management company. I considered this before starting my dividend growth journey, but I think that there are just so many companies out there much better at making money than I am.

      I’m glad the post got you thinking!

      Best wishes to you!

  2. says

    DM,

    In my profession, we always speak of being partially or semi-retired. I am a chiropractor in private practice. I only work 30 hours a week, but spread that over 6 days with Sundays off. We have a saying called “retired in practice”. Work until your comfortable and able to reduce your hours, and then work a limited schedule indefinitely. Several doctors in my area work 3 days a week (M,W,F) and take 4 days off. That comes out to only 15 hours of clinic time per week. The idea is to reduce your workload enough to do the things you love, but work enough to keep some steady income coming in (and of course take plenty of vacations). I think in another 4 or 5 years I will reduce to a M,W,F schedule and see how it goes. I always have the option to add back hours (days) if I need to.

    If you could get to $600 in dividends, then I think you could easily make $600 a month on the internet with this blog and maybe a couple finance related niche sites. Your writing style is excellent. You should also look into article marketing. Check out a website called infobarrel.com. With a library of well written articles, you could start to earn lots of passive income from Adsense, Amazon and others. I know many of the writers there make over $1k a month and since you seem to write a lot of quality postings, I thought it might be a natural fit.

    Great car by the way…

    DPS

    • says

      DPS,

      Sounds like you have a great thing going on there! I have a limited set of skills, and so the kind of income I earn requires quite a bit of work on my part and I accept that.

      I wish I could earn that kind of income online. Just to clue you in, I made $0.15 yesterday in adsense earnings from this blog. That’s a little low as I usually average a little more than $1 per day, but it’s certainly not part-time job income. I may check out infobarrel.com, as I’m interested in finding out how to make more money online. As it is, I spend quite a bit of my personal time on writing articles for this blog and the general upkeep and it seems the time for income exchange has not been in my favor so far. That is unfortunate, as I always hear how you can “follow your interests and the money will follow”. Perhaps I need to give it more time?

      Thanks again for the tips. It’s much appreciated!!

      Best wishes.

    • says

      Writing is certainly a handy skill to have, so it’s great that you’ve got that. =)

      It looks like if you write for Infobarrel, you get revenue from Google Adsense or eBay affiliate programs minus Infobarrel’s cut. So, you could write good content for that site in the hope of getting more traffic (and it might be handy for building links to your site), but it might also be a good idea to invest time into improving your site. Maybe a mix of both?

      See if text Adsense ads work better for you (they appear to get better click-throughs if they look like part of your site). Consider putting together e-books that you can offer for sale, too. You can take advantage of your archives, and that might work out better for you than Adsense.

      I’ve been reading a lot about creating value and earning through blogging and related pursuits. I’m starting my experiment with entrepreneurship next week, leaving a wonderful job in order to try things out myself. I’ve read dozens and dozens of books and blogs about entrepreneurship, and I want to see if I can help make things happen. =) In a way, it’s a little like semi-early-retirement (at 28, yay!), so thanks for sharing that perspective!

  3. says

    I love the idea. Having the freedom to use half of my time working on my own side projects? That sounds great. I’m not sure that I would try it when only pulling in $600 in supplementary income though. If you are leaning towards this because you find your job that unpleasant, I would suggest looking for a new job. Five years is a long time to be unhappy in your job.

    I’m currently an Algebra teacher, but this fall I’m headed back to school. I’m going to get my masters degree in public policy. My earning potential will be significantly higher, and the chances of me getting cussed out at work will be much lower.

    • says

      Ben,

      Thanks for stopping by.

      I hear you on not working at a job that one finds that unpleasant. I don’t particularly like my job, but I dislike the schedule and time it requires infinitely more than the actual work itself. I don’t enjoy working for 10+ hours per day, but doing the same job for 4-5 hour per day probably wouldn’t be bad. Unfortunately, it’s not possible to have that kind of schedule at my work.

      Best wishes with your masters degree. I hope it all works out for you!

      Take care.

  4. says

    Early Semi-Retirement is my goal. I figure that if I have all debt paid off (including house) and drop down to 24 hours a week, then not only can I keep benefits (that is most important if you can’t qualify for medicare) but I can easily earn enough to pay all the living expenses and probably still fully fund 401(k)and IRA.
    Even better, if I could work two 12 hour shifts at the beginning of the two week work week and two 12 hours at the end (i.e. 4 days in a row) then I could potentially have 10 days off consecutively every two weeks!
    Where do I sign up?

    • says

      me myself and I,

      It sounds like you have a great goal in mind. I’m starting to transition my own thoughts from quitting work altogether at 40 years old and perhaps aim toward a semi-retirement at a much earlier age, such as the 35 year old mark I mention in the article. We’ll see. There’s always benefits and drawbacks.

      10 days off in a row sounds like my kinda deal! That’s like a two week vacation every two weeks. Sounds like a great plan.

      I’d like to know where I sign up too!

      Best wishes!

  5. Anonymous says

    DM – I have grown to really enjoy your site, but I’m not sure about your retire at 40 goal. It seems unreaalistic. I would love to retire today if I could, but feel I will be lucky to retire in my late 50s/early 60s.

    Not sure how the math works on retiring at 40 with a 360k nest egg. I am targeting $2-3M before I call it quits. I sometime wonder if it would be possible to retire on $1m, but without any idea what my health bills & insurance will be, that’s a huge wildcard.

    Not to sound morbid, but if you get cancer in your 40s, your $360k nestegg may take a HUGE dent, even if you have some health insurance coverage. I suspect any health plan you buy to bridge the gap until you can go on medicare will either A.) have massive co-insurance/co-pays or B.) have a huge monthly premium. I am guessing you are putting your faith in Obamacare to solve any future health needs?

    I guess the other option is to take your nest egg to South America, or somewhere where you can stretch it out. Me personally, I like living in the USA, though Canada sounds like a decent alternative.

    • says

      Anonymous,

      Thanks for stopping by. I’m glad you enjoy the site!

      Targeting $2-3 million for retirement means your expenses and lifestyle are probably very inflated compared to mine. There is nothing wrong with that, but yes if you have high expenses you will need a lot more money to live off of than I would. I live frugally and with purpose and this requires me to have less money invested in order to retire. Different strokes for different folks.

      I plan on having a HDHP when I retire. It’ll likely have a deductible of at least $5,000, so minor doctor visits and anything non-catastrophic will be on me. It’s basically just to protect assets in case something catastrophic happens. These plans can be had for less than $100 currently. As I age the costs will go up, but so will my dividends as they grow. That’s why I invest in dividend growth stocks.

      I have expressed openness to living outside the U.S. Specifically, I’ve looked into SE Asia (the Philippines), but South America (specifically Ecuador) could also be a potential retirement location.

      Hopefully that helps!

      Best wishes.

  6. says

    Who wouldn’t dream of early retirement, of having enough money to do what they want when they want. I suspect most folks who are proactive and ambitious enough to try to make this happen would not sit around playing golf, but would at least work part time in something they breally liked, start a new venture or something along those lines!

  7. says

    All the things you listed describe me, even though I am still in school. I really want to have dividends be able to cover some of my expenses before I enter the workplace even. I have a couple dividend payers now and I save any spare cash until I have enough to make the shares I buy worth the trade commissions.

    I am not sure how much investments I will have at any age, but the way I figure, if I save as much as I can then I am better off then not. I would like to buy semi retired by 35 and possibly fully retired by 40

    http://poorcanadianstudent.blogspot.com/

    • says

      tylerjames,

      Sounds like you’re off to a better start than I was at your age. I didn’t start investing until 28 years old, but I did always have a small interest for it. I just never really took action until recently. That’s unfortunate, but nothing I can’t fix.

      Being semi-retired at 35 or fully retired at 40 sounds like a great plan, and very similar to my own. I wish you the best in your journey!

  8. says

    absolutely!! I have always been of the mind that my ‘work’ will never stop. It doesn’t have to sound depressing to say life=work. Only sucks if you have to work on someone else’s terms. Making a small wage until you are no longer able to is a _great_ way to bring in one’s retirement age! (even if it’s just grocery money you’re earning, goes a loooong way)

    - – beneficialbard.com

    • says

      Beneficial Bard,

      I see you’ve recently started your own journey toward FI through frugal living. Best of wishes to you with that.

      I go back and forth with what you’re saying there. On one hand, it’s nice to get out and earn a wage doing something at least partially interesting while your body allows you too…because one day you’ll no longer be able to either through death or sickness. On the other hand, time is limited and life is short so how much of that limited time do you want to spend exchanging it for money?

      Good luck to you on your new journey.

    • says

      thanks for the well-wishes.

      I approach the subject from the ‘if you don’t use it, you lose it’ angle. i.e. if you cease to strive for goals (on a daily/weekly basis), you could be signalling to your body that you’re ready to wind down (a signal you don’t want to transmit!). Even from a mental aspect, it can be essential .. a suicide hot-line friend of mine told me that their most common demographic profile was white males who had just entered retirement within last 5 years!

      Not sure how true this is, but it sure got my attention.

      Keep inspiring folks like me :)

    • says

      Beneficial Bard,

      Hmm, that’s interesting about your friend. I think it comes down to personality types and what interests you. There are some people out there that really identify themselves through their occupation. I would be willing to say that the majority fall into this category. If you lose your identity, with no hobbies or other interests to fall back on, that could certainly be a big emotional shock.

      For instance, I was talking to a guy at work today…asking him what he would do for a living if he had to change jobs. He didn’t really elaborate on that, but after some further conversation I found out he didn’t have any hobbies at all. He basically went on to describe how it’s hard to find time for hobbies when one works 50+ hours a week and has a wife and children to attend to. In his case, if his job was to disappear I could be sure he’d be in for a big shock because that’s a large part of his identity currently.

      Interesting stuff. I think it’s important to find other ways to identify oneself other than your career. On the other hand, if it’s what you truly enjoy…then that’s fine too. As I pointed out in the article, if you’re someone who likes what you do and has no desire to retire early or live frugally you probably have no interest in my articles or ideas. And that’s fine. I don’t necessarily “encourage” anyone to live the way I do, or see things the way I do. I’ve come to the conclusion that one should be happy. If spending all your money and working until you’re 70 makes you happy then I say go for it. Who’s to say that’s anymore right or wrong than someone who lives frugally and becomes financially independent at a young age? Humans are naturally egotistical and we all believe we are correct whether it’s religion, politics, finance, education or whatever.

      Live how you want to live. But, if you want to retire early in life I would definitely recommend to take a long look in the mirror and ask yourself “WHO AM I?”.

      Best wishes.

    • says

      Kanwal,

      Thanks for stopping by!

      You’re absolutely correct. Making wise investment decisions early in life can reap vast rewards later down the road if you’re willing to put in the time and effort.

      Take care!

  9. says

    You know, not to be rude, but I’d see being bored as a kind of personal failure. There’s a million ways to maintain contact with friends and people in general and a million things to of sufficient depth and complexity as to enable you to devote all of your time to them. There’s just no excuse for being bored.

    • says

      I Need Money,

      I agree with you. I, personally, don’t really ever see myself getting bored. Of course, it’s also difficult to forecast something like that because I’m not in that position. But, to be honest, I just really doubt that boredom would ever be a reason I would actively seek employment.

      However, that isn’t to say that this isn’t something to think about as you seek out early retirement. One key thing to always remember that even though you’ll no longer be working, everyone else in your life likely will be so you may not actually have any more time with the people you care about. Just some food for thought.

      Take care!

  10. says

    Semi retirement is definitely possible if you are in my situation. DM, this gets back to what I mentioned in the comments of your last post: working in a high cost area, then moving to a lower cost area.

    So, work in a high tax, high cost area for 10-15 years. You need to work at a job that is high salary and well above the average even for the area. This is easier because the high cost areas have more high paying jobs.

    You may say that this is hard. Not necessarily, because longevity at a job or career will get you more money over time if you keep your focus, increase your experience and make prudent job changes.

    You save and invest more. Your house (if you bought one) will be worth more because of appreciation and accumulated equity.

    If you want to semi-retire, simply move to a lower cost area. You will get an immediate reduction in expenses, which reduces the amount you need to maintain the same standard of living. Many expenses will be similar in cost, but the big ones can get you big savings. Such as buying a home, paid off with your existing equity. Also, health care policies are typically cheaper in the lost cost states.

    • says

      SFI,

      I agree. Geographical arbitrage can be a wonderful way to retire earlier in life with more relative wealth than you would have otherwise. I live and work in an affluent area, but it’s not a “high cost” area so my income is relatively high for my skills and the job I do while costs are relatively low.

      I think one of the best ways to engage in geographical arbitrage, if you’re open minded to it, would be to work in the U.S. for 15 years or so (in a high income area if possible) and then retire overseas to a developing country where your dollars go much further. Going to the Philippines or Ecuador with $350,000 saved up could buy you a fairly large lifestyle.

      Best wishes!

  11. says

    A friend recently retired…. and now is back to creating new businesses. Retirement, with no aim or purpose, can be debilitating. However, if you have purpose and some money to invest, it could work.

    • says

      Doctor Stock,

      Thanks for adding that. I completely agree. If you retire with no aim or purpose in life, than you’ll likely just be sitting around wondering “what’s next”. Retirement isn’t a destination, I believe it’s a journey. I plan on just doing more of the things I already enjoy. If you enjoy your job, enjoy “staying busy” or identify yourself through your career path, then continuing to work might serve you better.

      Best wishes.

  12. Anonymous says

    Hi Dividend Mantra,

    I am older than you 35 already and have made similar calculations as you that it would take about 10 years to be fully financially independent. I am considering partial retirement but I have a couple of concerns
    1. The norm of working full time is strong so anyone who does not is seen as odd and it might be hard (at times) to find qualified part time work.
    2. If I am dependent on the work income to fund even basic living costs then I am not independent and have to work on someone else’s terms.

    For these two reasons I am currently trying to calculate what the lowest level of living expenses me and my family could survive on and make sure we have this level of passive income. Then me and my wife could quit our full time jobs and start looking for other opportunities such as part time, self employment, consulting, teaching, writing etc that interest us. If we are successful in finding good part time jobs then we will have much more money but if it proves a little difficult at times then we can live of the investments and pay for housing, food, clothes and transportation. No fancy stuff but the basics of life.

    Even if I had millions in the bank and could retire fully I think I would still prefer to work a little but on my own terms (maybe full time 6 moths a year, or a couple of days a week 9 months a year?)

    Thanks for a great blogg,

    Oskar

    • says

      Oskar,

      Thanks for stopping by and adding that!

      I agree with you on calculating what your base level of expenses are for life’s basic needs (housing, food, transportation) and then making sure you have enough passive income to cover those items in case employment doesn’t work out. If I was to consider semi-retirement at a young age, I would probably do the same. I’d make sure I could get by at a basic level with passive income and then rely on employment for improved basics as well as life’s little luxuries.

      Best wishes for your future!

  13. Chess4Diversion says

    Hi Dividend Mantra!

    I am almost 39 years old and have been semi-retired for nearly 5 years now. I took a big gamble then and quit a $46k/year job then. It was a good job with benefits, but I was drawn to the idea of personal freedom too much. I was burned out and wanted to have some free time to myself. So I quit with the idea of having at least a few years off, sort of like an extended sabbatical.

    At the time I had my modest house (Now worth $50k) paid off with no debt and approximately $40k in savings. I had 2 roommates that paid me rent of $90/week each. That rent covered my living expenses after I trimmed my budget down (got rid of cable, car, ect.). I took entire year off and my savings totaled about $60k at the end of that year (Sold my car for $18k). My dad asked me to go into business with him at that point. I was reluctant as I was settled into my laid back routine (sleeping in, movies, video games, riding the bicycle to the park, chess, ect.). I took a chance and it has worked out great. He handled the field work and I handled the office end. As it stands I probably put 10 to 15 hours a week into the business and its generally when I care to do it. One of the things that I hated about a regular full-time job was having to be there on a set schedule regardless of what else I would’ve rather been doing. I work best in spurts. This is much more agreeable to me.

    As it stands I currently have around $210k in savings and would like to have at least $300k before I would be comfortable not having the business income. My personal living expenses are around $800/month. I still have the roommates, but cant count on that forever. My savings yield me about $650/month in interest. So I am very close to financial independence. Knock on wood…but I am very glad that I took this path. No, I don’t have the lavish lifestyle that others may have, but I enjoy riches in personal freedom and time that most only dream of. Thanks for writing this blog and keep up the good work. It sounds like you are on the right track.

    Take care and good luck on your Journey!

    • says

      Chess4Diversion,

      Wow, congratulations on your success story. I’m really glad to hear of someone who took a road less traveled and prospered. It’s certainly very refreshing!

      It looks like you definitely made the right choice and it has served you well. Not only did you buy yourself plenty of time to do the things you enjoy, but you also allowed yourself the freedom to take an opportunity when it presented itself. That’s one of many benefits that financial independence offers: freedom. You had the freedom and flexibility to choose to undertake a business opportunity that has allowed you and even better chance at long-term success.

      You are even more frugal than I am. Congrats on that. It looks like your rent is the major difference since you practically live rent-free. That’s really awesome that you are able to do that. I’d love to be in that situation, and like I’ve said many times I’m open minded to living overseas where rent would be a fraction of what it is here in the U.S.

      Thanks so much for sharing. These stories make it all worth it.

      Please keep in touch!

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