The following is a guest post from Steve at Money Infant. Steve is an early semi retired guy living in Thailand and blogging about personal finance from the perspective of someone who values experience over material things. For more on early semi retirement, see Is Early Semi-Retirement a Better Option than Retirement? and Eight Steps to Early Semi-Retirement.
Everyone knows what traditional retirement entails right? You work for 40 years, save diligently and are rewarded with lunch and a gold watch and you ride off into the sunset to play golf, garden, travel or whatever else gives you pleasure. Early retirement is pretty much the same, but is reserved for those who either live quite frugally and can afford to ditch the rat race early or have amassed a considerable fortune. But what is the blazes is early semi retirement?
I'm sure you could probably give me your own definition (and I hope you do in the comments below), but the rest of this article will focus on what early semi retirement means to me. It has to be, because the only persons head I can really get into is my own. If I were to write about someone else's idea of early semi retirement it would just be guesses and conjectures.
In some ways early semi retirement is akin to self employment, but I think there are several key distinctions.
The Need to Work
If you are semi retired at an early age (I'll define that as any age younger than 59) you will most likely need to continue some form of employment. This is not only for the added income, which you may or may not need, but it is also for your own sanity. There are few things worse than going through life directionless and drifting. Sure it might be fun for a few months or even as long as a year or two, but eventually you will want something to focus on that gives meaning to your existance. And for many this means some sort of work.
Now don't get me wrong, by work I mean anything that keeps you occupied on a regular basis and gives you a reason to keep moving forward with your life. This could be a small business, writing, a hobby or anything that requires ongoing effort to keep advancing. Work does not have to equal stress or answering to others. Work can and should be fun. Retirement is for fun, so early semi retirement has to embrace this attitude as well.
The Need to be Retired
Retirement is often equated with doing what you want, no time constraints and freedom. And in the same vein you want to have these things in your early semi retirement. While you may be working, it should be something you do because you love it. It shouldn't tie you down to a schedule. You should be free to explore and take time for yourself whenever you see fit. If your semi retirement consists of a job that requires you to stay in one place, report to others on a regular basis or hampers your enjoyment in any way then you aren'y really semi retired you are semi employed.
The Need for Income
One of the key things that sets us apart in retirement is not just the freedom from traditional work, but the fact that we are living off a passive stream of income. Whether that be social security, a company pension or our own retirement savings we have income that does not require any activity on our part (short of occassionally filing some paperwork). In order to become retired early we would need to accelerate this process or circumvent it in some way. Most retirement income requires you to be over the age of 59 1/2 to collect so the traditional retirement income streams won't cut it.
Some other alternatives for creating a passive stream of income include real estate investments, dividend bearing stocks, website ownership and the traditional bonds and prefered securities. While it may be difficult to completely replace your income through these means in your 30's or 40's it isn't impossible. Even easier is to replace part of your income and to compensate for the rest through some sort of work (maybe consulting or freelancing) that you can do on your schedule and for a limited number of hours.
Pulling It All Together
Based on the above requirements of work, retired lifestyle and income to be an early semi retiree is to have work that you love, freedom to pursue your own interests and passive income to supplement your lifestyle. To me, life is too short to be tied to a desk or stuck in a factory for 40 years. I needed to get out and explore both the world and my own perceptions. To be sure it isn't always easy, but it is mostly fun, relaxing and enjoyable. And the best part is that I am still young enough to make the most of it.
What does early semi retirement mean to you?
I think the need to be retired becomes more pressing if you are not in good health or do not enjoy what you do. Financial considerations probably take the cake though, among the reasons some of us dread retirement. Disappearing pension and retirement funds are not helping either!
Thanks for the post.
Anthony
Posted by: Anthony | April 03, 2012 at 12:59 PM
My mom is semi-retired and became a real estate agent to help support herself since she's not able to get all of her retirement benefits yet. It's a great job and allows her flexible hours and the ability to work as little or as much as she wants - although it's stressful since the income is not consistent.
Posted by: Young Professional Finances | April 03, 2012 at 01:16 PM
I retired in 1992 at the age of 58 from a 36 year career where I looked forward to going to work every day. I needed the challenges that work provided and I enjoyed all of the interactions with my colleagues. I also felt good that I was helping to bring some major projects to fruition that were essential to our national defense during the days of the Cold War. I was allowed to set my own working hours to minimize traffic and I could also work plenty of paid overtime. I was getting 5 weeks vacation per year that I took full advantage of with lengthy treks to Peru and Nepal (twice), and shorter trips backpacking and climbing within the USA, which were plenty enough to keep me very happy. I was also in a great marriage and had three children that were never a problem.
My wife retired shortly after I did and between us we each had nice pensions that easily supported our lifestyle. We both took SS at 62 which helped fund even more travelling after the children left home.
Looking back on our lives after 20 years of retirement neither of us would change a thing.
I realize however that with the fall of the Soviet Union and the ending of the Cold War everything started changing in the defense industry. Bottom line - I was very lucky that my timing in the industry that I chose was perfect. Today would be a very different story. I learned that you have to have an occupation that is in sync with the times and in sync with the economy.
Posted by: Old Limey | April 03, 2012 at 02:03 PM
I'm in perfect harmony with Steve @ Money Infant's sentiments. For about 10 years, I've been blending working for money part-time, investing for passive income, volunteering in enterprises and for causes I'm passionate about, and pursuing what interests me. I do not envision a day, nor do I want the day to come, when I'm not working at all. As long as I have a few functioning brain cells, there's nothing like earning a little money and contributing to community to help me feel satisfied. To me, 'retirement' is a defunct concept.
Posted by: Kurt @ Money Counselor | April 03, 2012 at 02:57 PM
After saving for years at a 50% savings rate I went into business for myself. I'm around 40 and probably have about half of what I'd like in investments to retire early.
Sometimes business is bad and there's not that much to do, but what work I do do pays well. When work is busy I call myself a small business owner. When work is relly slow I call my self semi-retired. I really don't mind either state.
Posted by: Steve | April 03, 2012 at 05:27 PM
@Anthony - It's a very different world from the one our parents retired from. Bad enough that the company pensions have gone the way of the 45 record, but its hard to even rely on our own savings and investments these days. Not to mention what surprises the government might have in store for the future of social security.
@YPF - That's great for your mom! The best way I've found to smooth out the fluctuating income is to budget from savings. That's to say, if my expenses are $3000/mo I have an account that gets funded with $18,000 twice per year. It does require some discipline to make sure you stick with your budget, but it gets rid of the stress that comes with making $4500 one month and $1500 the next.
@Old Limey - It sounds to me as if you've had an ideal career and that has continued into your retirement as well. You sir are a fortunate man :)
@Kurt - Maybe retirement was a failed experiment? Consider that there are probably only two generations in the history of the world who had the luxury of retirement...
@Steve - It actually sounds like a pretty good balance. Is the business seasonal that you get the ups and downs? That would be great because you can even plan/prepare for the busy and slow times.
Posted by: Money Infant | April 04, 2012 at 08:09 AM
@Money Infant - I agree that I have been very fortunate in that in retrospect the timing of the three major decisions in my life turned out to be perfect. It was pure luck because they were not the result of any great brilliance or research on my part. One was the chance meeting of my future wife when I was a young boy of 16, the second happened when a successful uncle made a rare visit to our family when I was 17, immediately saw that I was in a dead end job and suggested that I take a cut in pay to become an apprentice for a major nearby aircraft company that would also sponsor me to get the equivalent of a BS degree in engineering by the end of the 5 years.
The third happened near the end of my apprenticeship. I was standing in line in the cafeteria getting a cup of hot chocolate on a bitterly cold winter's day in England. A fellow worker behind me in line said, "I will say goodby to you since I'm leaving this weekend for a great job with an aircraft company in Canada". He gave me all the details, I then applied for a job with them, received an offer at 3 times my current salary. We then got married, and sailed off to Canada, two years later we moved from Canada to Denver, and then after two more years on to California where we have been ever since. Without those 3, out of the blue, decisions it's impossible to know how my life would have turned out.
Posted by: Old Limey | April 04, 2012 at 01:32 PM