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Creating Freedom Through Financial Independence


Semi-Retirement: Your Shortcut to Freedom?

February 15, 2020

We all love the idea of complete Financial Independence (FI).

Abundant free time, and passive income covering all our expenses.  The only issue is, building this level of wealth and financial strength can be a long road.

And even though 10-20 years of full-time work for a lifetime of freedom sounds like a great trade-off, there are many people who find this hard to stomach.  I totally understand this feeling!

So if you find yourself feeling impatient about the journey ahead, there is another life-enhancing option to consider: semi-retirement.


What is Semi-Retirement?

I simply think of semi-retirement as being half-retired, or half-FI – however you’d like to think of it.

It’s where, instead of waiting until you have enough investments to live off completely, you retire earlier and live partly off your investments.  At this stage, you either have a home paid-off, or a decent amount of investments providing you with some income, but not enough to live off.

And you typically do some part-time work on the side, to cover the gap between your current spending and your passive income from investments.

So, why would someone choose to ‘only’ semi-retire?  Lots of reasons!  Let’s take a look.


The benefits of Semi-Retirement

Here’s a list of the key points behind the case for semi-retirement.  Some are blindingly obvious, others are sneaky perks and reminders.

— More freedom in your life sooner.  Less savings/investments needed, meaning a shorter stint to FI (even if it’s only half-FI!).  In many cases, it will shave off between 5 and 10 years!

— Most people are highly likely to work part-time and earn money after retiring early anyway.  This may be hard to envision right now, but it’s almost certain to be true.

— You’ll have more days off than you work.  Even if you work 2 days per week, you get a 5-day weekend every single time!

— Due to the ingrained saving and investing habit, you’re likely to manage your finances so that you maintain a surplus and add to your portfolio over time.

— You get the confidence, mindset and lifestyle benefits of someone who is fully retired, yet you only have to do a small amount of work to keep everything humming along.

Superannuation can be accessed later on, further reducing the need to earn income and/or strengthening your financial cushion.

— It’s less of a shock to your system than going from 100% work to 0%.  Semi-retirement can act as your stepping stone.

— You get to spend your time doing things that mean more to you than work.  Your health, your family, your hobbies etc.  As a result, your life will be happier and less stressful, even as you continue partly-working and building wealth.

— The government pension will be available if you somehow manage to earn zero money ever again, while simultaneously spending down your portfolio and find yourself needing income later in life.  And by the way, for homeowners, the pension is more than enough to live a good life.

— You’ll likely still become 100% FI over time, as your portfolio grows faster than inflation, and more-so if you can add small amounts to it periodically.

— Some folks don’t want to stop working entirely.  Maybe you love your job and would simply be happy to work less and have more free time for other things.  Semi-FI is perfect for that.

— Due to earning less, you’ll be on a much lower tax rate than before.  Each hour of work will earn you more after-tax than before.  This uses your time more efficiently and gives you an effective pay-rise for working less.  Not bad huh!?


How much do you need to Semi-Retire?

In my view, a great starting point to consider semi-retirement is when you have half your expenses covered by investments.  Either that, or having your home paid-off, because for most people, a mortgage tends to be around half of their yearly spending.

To me, this level of financial strength gives a good foundation to break away from the full-time rat race and transition into a cushy-yet-still-productive lifestyle.

Also, knowing in your mind that half your expenses are covered by investments, or that your mortgage-free, is a meaningful achievement, psychologically and financially.  Being a third or quarter of the way to FI just doesn’t come close to having the same power.

Getting to the half-way point might seem arbitrary to some.  But I feel it offers a genuine mental, lifestyle and happiness boost!  We’ll call this: “the 50% rule.”


What does this look like in real life?

Let’s take a scenario where a household has annual spending of $50k.  Half of this is regular spending, and the other half is their mortgage or rent.

At this rate, they’ll need roughly $1.25m to be financially independent forever, assuming their investments provide a sustainable 4% per year.  But what if they follow the 50% rule?

Well, rather than needing 25 times their annual spending to retire, they only need 12.5 times.  So, all that’s required in this case, is $625k of investments.

Either that, or to pay off their home in full.  Either option will mean half of their expenses are covered, and they have enough financial strength to semi-retire.

How much time will this shave off their working careers?  Well, in this simple scenario, a 16-17 year FI journey is cut down to just 10 years (this is when their savings exceed $625k).

They can now turn the dial more towards ‘life’ and activities of their choosing, and away from ‘mandatory work’.  For now, they still have a $25k per year spending gap to cover.  What about that?


Covering the gap

So, our semi-retirees need to find $25k per year from somewhere.  Or, ideally, a little more than that so they can increase their investments, further strengthening their financial position over time.  This is where part-time work comes in.

Between a couple, $25k per year should be easy enough to earn.  Even on minimum wage, this equates to roughly 3 days per week.  Spread across two people, that’s just 1.5 days of work each, per week.

And at the median Aussie wage, this equates to less than 2 days of work per week.  Or, roughly 1 day each.  (income figures are from this recent post using ABS data).

Of course, as is often the case with most things regarding early retirement, lower spenders have a built-in advantage.  Why?  Because it’s much easier to plug a spending gap of $25k than $50k.

So the part-time work chosen doesn’t need to be lucrative or high-paying.  This means the more frugal early retirees have a wider range of options.  Also, they can choose work based more on what they think they’ll enjoy, rather than needing a certain amount per-hour, for example.


Other ways to Semi-Retire

Another option is to scale down work steadily as your investments and passive income grow.  This won’t be suitable for everyone due to workplace requirements, but it’s worth keeping in mind.

This also slows down your progress to 100% FI.  But on the plus-side, you get more freedom sooner and some of the benefits listed earlier.

Imagine you build investments of $300k, giving you a passive income of $12k per year.  At this point, you could probably afford to drop one day per week of work.  As long as you maintain a surplus to add to your investments, you’ll soon be able to afford two days off.  Then three, and so on… until eventually you’re 100% FI.

This would suit people who are generally happy with their careers, okay with slower progress and just looking for some extra free time each week while still growing their investments.

Another savvy method is Flamingo FI.  This is where you build some savings, then switch to part-time work a.k.a. cruise mode.  You make sure this part-time income is enough to live off, while your investments compound in the background, eventually taking you to 100% FI.


Frugality and the 50% rule

This wouldn’t be a Strong Money post without me riffing on the virtues of frugality, at least a little 😉

As you remember, the 50% rule says that the ideal time to declare semi-retirement (if that’s your plan), is when you’ve got enough investments to cover half your spending.

Under this rule, a household who spends $50k per year needs $1.25m to fully retire, and $625k to semi-retire.

Now, let’s say they’d been saving and investing for a while and had built up $500k.  This is 40% of their total FI target, and 80% of the way to semi-FI.

But maybe they decide to re-examine their lifestyle desires and further optimise a few things.  After this, they conclude that $40k per year would likely be enough for a happy and healthy retirement.  This cuts the amount they need to retire.

Now their total FI number is $1m.  And their semi-retirement number is $500k.  That means their progress jumps!  Now they’re 50% of the way towards total-FI and can semi-retire straight away!

Constantly re-visiting and questioning our wants and needs is honestly one of the best things we can do.  Once we start turning away from standard consumer culture, and see how destructive and ultimately unsatisfying it is, we often find our desires melt away over time.


My verdict on Semi-Retirement

I think there’s another really useful way to approach this for some people.  And it’s this…

Retire on the basics, and use part-time work to pay for the luxuries. 

I’d encourage this approach for a few reasons, especially those who are planning a higher-spending retirement.

Firstly, this gives our brains the correct message about our spending.  That these luxuries require extra time and energy from our lives to attain.  So, by separating your basics and luxuries, this becomes a constant and unavoidable reminder of the trade-off, in the healthiest way.

Okay, what’s my overall verdict on semi-retirement?  I think it’s a fantastic idea!  And I’d strongly consider it if we had to start from scratch today.

So, for those that are keen, follow the 50% rule or any other flavour of semi-retirement you like.  Also, it’s a good idea to retire with around 6 months spending in cash.

This gives you time to unwind, settle into your newfound freedom, as well as find the right part-time work without rushing.  Remember, you’ve got investments behind you, so there’s little need to stress.


Final thoughts

So, that’s the ultimate solution for the folks who aren’t wedded to the all-or-nothing approach to Financial Independence.  And for those who were planning to work part-time anyway, shooting for semi-retirement is a fine way to go.

And remember, if you structure your finances right and maintain a small savings rate, your wealth will continue to grow over time, leading to complete Financial Independence as an added bonus.

There’s no shortage of reasons to consider semi-FI.  It can give us the time and freedom we desire, allowing us to focus a bit less on work, and more on the other valuable parts of our life.

We get to live a great lifestyle, stay engaged and productive, all with a respectable pot of savings looking after us in the background.

So if you’re looking for a killer shortcut to freedom, maybe semi-retirement is for you!

What are your thoughts on semi-retirement?  Let me know in the comments…


32 Replies to “Semi-Retirement: Your Shortcut to Freedom?”

  1. Also another motivating note is that when you are half way to your FI number in terms of $ value, you are more than likely actually 75% of the way there in terms of time due to compounding.

    I’ve loved looking at a few people’s progress when it has been tracked all the way through and seeing their second half $ takes half the time to accumulate as the first!

    Just a little boost for people hopefully


  2. Great article

    What does this look like practically?
    Let’s say I have 20k expenses pa and half fi Is therefore 250k (12.5x). Let’s say I have 250k in equities particularly VTS and VAS.

    Do I sell units to reach my 10k (half) requirements or wait to receive dividends each quarter?


    1. Cheers Tom!
      Well, depends which option you prefer. In my view, the simpler option is to collect the income and then sell some if necessary. So since VAS has a dividend of about 4%, there’s nothing to do there, just let it roll in. The VTS dividend should be around 2% or so, which will mean trimming that holding by 2% each year (or $2.5k) to make up the difference. This should give you $5k per annum from each holding, assuming they’re 50/50. Hope that helps!

  3. As the sole carer of a young child, and someone who’s lucky to have well paid, secure, part time employment, this echoes my sentiments exactly. I get to spend precious time with my child, look after my mental and physical health and work my way steadily towards FI while enjoying many of the benefits right now.

  4. Been doing the FI/2 thing for quite a few years now and highly recommend it to anybody who loves their work but also loves their non-work time too. I’ve been a big part of my kids’ lives since they were born (now 12 and 14) and also had time to indulge my passions. The lovely side-effect is I actually love mywork more because I’m only part-time. Investments sit in the background compounding and earned income is enough to live off day-to-day.

    1. That’s awesome! There really can be a beautiful middle-ground like you’re finding. I think semi-FI is perfect for a pretty wide group of people, but a lot of us get caught up in the all-or-nothing approach and assuming we need masses of savings to break away from the 9-5.

      Mrs SMA is finding the same thing… the little annoyances at work are easily shrugged off when working only part-time.

  5. I’m doing this now!
    I’ve got the FI thing under control, but being single, I only have my own investments to look after me. If anything goes south, I really don’t want to have an indigent old age to look forward to. At the same time, I really don’t have to work full-time anymore.
    So I’ve dropped back to teaching 3 days a week. (I’m actually getting paid for 4, as I’m using my LSL a day each week.) It’s only been a couple of weeks so far, but already I’m noticing a distinct difference in the pressure I feel to Get Things Done on the weekend. The extra time is turning out to be a fantastic thing.
    I’m getting renovations done on my (fully paid-for) home, so that when I DO decide to pull the pin on the job, I shouldn’t have to pay for major house things out of my retirement nest-egg. I’d rather use it to go travelling.

    1. Sounds to me like you’re in a very very good situation and maybe even being overly cautious, but given your experience that is completely understandable!

      Great to hear you’re enjoying the extra free time and even using that time to be productive 🙂 I’m probably the laziest early retiree there is lol.

  6. Thanks for a well thought out post on this topic, Dave. It’s definitely something I have started to consider which could become an option for us in the next few years, though targeting less than eight years left to full FI if staying at work full-time. Will really depend on how the next few years pans out with growth of investments, how we feel about our jobs, and perhaps whether some side hustles start to take off. Also considering taking up to six months off work as another option, if I can negotiate that one with my employer. This would be to try out a mini retirement to get a taste of what it’s like and fill that time with some big plans that I have. All very exciting scenarios to be fortunate enough to even be considering!

    1. Great stuff SOL Guy! And that’s the thing – once you’ve built at least a half-decent pot of savings, so many options open up like you’re saying. So our lives become super flexible and we get to do experiments on what work/lifestyle suits our situation 🙂

  7. Thanks, Dave.
    This really put a smile on my face.
    I’ve been so fixed on 100% FI and worrying about what would happen if the economy turned (for example) and I could no longer work full time.
    I had never considered this ‘in-between’ scenario.
    Believe it or not, I had also never looked at how much we get from the pension – it’s not terrible is it?

    Thanks again for the post and the info


    1. Cheers Shaun, your comment put a smile on mine 🙂
      The in-between scenario is probably underutilised by many in the FI space, but it can really be a golden scenario with lots of benefits of FI in a shorter time.
      And yes, totally, the pension is more than fair in my book! Many will whinge that it’s not enough, and in some cases that’s probably true, but for most of us it’s plenty – especially so if you’re good with money.

  8. Best blog post ever! And I have totally devoured your whole site!

    Finally someone has mentioned accessing Super and the not so desirable but actually a good option of the aged pension too.

    For those of us a little older Super isn’t the icing like for younger people but the probability of the rules changing in the next 13 years aren’t likely and we do count super in our plans.
    Along with absolutely no problems with accessing any and all government benefits that we may be eligible for.
    For us that means Austudy in the next few years, then part time work until we decide we don’t want to.

    By including those things in our plans, along with maximising our frugal lifestyle then we are planning on moving from Vic to Wa later this year, studying for the next few years and then semi retiring forever.

    Anyone we have mentioned it to thinks we’re insane to give up our income but that income means we have absolutely no life or lifestyle and a few absolute tragedies in the last few years means we will take a lower income lifestyle than no life but a high on paper income.

    Thank you for such a great post but also for the information you give so freely, it’s been life changing for us ????

    1. Great comment Addison, and thanks for reading so many posts! Really glad the blog is helpful for you 😀

      I totally agree with you – having a high income and no life/free time is absolutely meaningless. More freedom and a modest amount of money is far more valuable. Extra income can always be earned later anyway, if one really wants it.

  9. Hi Dave
    Very timely post! This is exactly what I am putting into action now.
    A small trade off in final wealth for a life style change that will make me and my family so much happier.
    I have looked at all the scenarios carefully and I more than happy to take the plunge into semi-retirement. Looking forward to my new life!
    I would also like to thank you for all the great info and discussion in general on your web site and blog. So much of it makes total sense and I really resonate with your plans and strategy.
    You and Aussie Fire bug have provided me with so much good info and the ability to look at investing in a confident informed manner. I will be passing on my knowledge and investments to our son-this will set him up for life. Thanks so much and keep up the good work.

    1. You’re very welcome Brad, and thanks for the kind words! Very cool that you’re passing the lessons onto your son too.

      Fantastic to hear about your semi-retirement plans, it’s bound to be a fantastic lifestyle decision. I wish you all the best with it!

  10. Thanks Dave for another great article. I must admit I had not really considered the semi-retired option in as much detail until now. Having started later in life, this now opens up a new avenue for me and one that I think will be more achievable for me in a few years time. Thanks for sharing. I really enjoy your blog.

  11. Thanks so much Dave. This is just a fantastic post and I’m quite inspired by it. I feel like this may help me think of saving in a new way but I don’t fully understand how yet.

    Essentially I own my own home and I work part time (school hours) since I am a mid forties single parent of 3 kids .. so on some level I have bits of semi-retirement. But I don’t live off investments at all yet since my savings are mostly going to fully fund super. Also the extra non-paid hours are to look after family.

    I am saving small amounts outside of super but it seems like any meaningful income from this is a long way off. In particular I find myself regularly overspending and derailing my own plans. I tend to do this when I’m exhausted and overwhelmed.

    Perhaps this post can help me frame a more achievable short term target which will, in itself, help me focus on reducing spending which ultimately will relieve much more stress.

    1. Thanks Girt. I hope it helps give you extra motivation in sticking to your plans when things get a bit tough. Creating an achievable short-term goal should definitely help.

  12. Hey Dave. Liked the post on semi retirement. Both my wife and I both work, I’m 60 and she is 57. We are getting very tired with daily grind. Own our home and have a reasonable amount put away. Just never thought about doing the numbers. Thanks for the kick in the pants, just what we needed. To easy to just go along.

    1. Sounds like you guys are perfect candidates for semi-retirement! Congratulations 🙂
      Now it’s time to strike while the iron is hot and plan your escape…

  13. Dave,
    Thanks for another great post.

    Previously I’ve looked at the Flamingo FI option, and it resonates well with our plan. How you’ve laid it out makes perfect sense: let the Investments cover our basic needs, and work for all the luxuries.

    Also, thanks for all the posts over the last 12-14 months that I’ve been reading this blog. I’ve finally made some decisions, and commenced investing in index funds (VAS). It’s weird how the price has gone up since I’ve purchased, as the second lot of shares costs more. This doesn’t feel good, but it’s ok. Warren Buffet said, “I like to buy my stocks, like my socks, when they’re on sale”. Thanks heaps for simplifying the numbers and mindset.

    PS. Already recommended your blog to a few close friends. Thanks for the content. Very well presented.

    1. Great stuff Matty. It sure isn’t easy getting used to paying higher prices with every purchase. But then some people struggle buying more when it’s falling. And then others get frustrated when the market is going nowhere lol. Ultimately, all we can control is how much we save and invest.

      Also, I’m glad you’re enjoying the blog, and thanks for spreading the word!

  14. Hi Dave. First of all, thank you for putting the effort and time to write articles regarding FIRE. I came across your blog a year ago, looking for information on FIRE which is more Aussie-focused. I am so glad I found your blog as I have learnt so much from your posts.
    I find this article most enlightening as I was playing with my FI numbers on my Excel spreadsheet, trying to find ways to shorten my FI journey, 2-3 weeks before you published this post. I was trying to figure out if I could afford to work less with my current investment return. It is such a great timing you posted this article about semi-FI. I like the idea of gradually becoming 100% FIRE. Being able to drop one day per week of work as the portfolio continues to grow with regular savings and compounding is going to keep me motivated. The taste of freedom will help me stay the course until I embrace 100% FIRE =)
    Thanks again for your effort.

    1. Thanks for the comment – really great to hear you like the blog and this post in particular! Your semi-FI strategy should definitely keep you motivated and let you enjoy an increasing amount of freedom along the way 🙂

  15. Great concept! I guess, technically, we are semi-retired FI as we own our house, have no other debt, and both work part time, despite the fact that we have only just begun the investing journey. We would expect to receive less than $1k dividends this financial year from our current share holdings which won’t cover much of our expenses! (It will be reinvested at this stage anyway).

    Our budgeted savings rate will is around 50% of our after tax salary (excluding tax refunds from last year and any Family Tax Benefit we may be eligible for which will be added to our savings) so our investments and therefore dividends should grow over the next few years.

    Our main goal at this stage is for neither of us to have to work full time again so our munchkins (who are not yet school age) can always have 1 parent at home (the advantages of having children later in life!)

    Our second goal is for one of us to stop work entirely and the other to switch to casual/contract work to top up our investment income. These may happen at different times but that’s ok. Not sure how many years that will take.

    Our final goal is to reach full FI and both retire completely.

    Great article and a good reminder that we don’t need a cool $1m+ of investments before we can begin to scale back and enjoy life in the now even more!

  16. Great post Dave. I echo much of the sentiment made in your post and other people’s comments. At 37, married with two young kids (5 weeks and 2 years) and a mortgage we started crafting a ‘more modest and frugal lifestyle about 5 years ago to enable us to both work part time for not for profit organisations. It’s only in the past 6 months that we’ve started to invest and enter into the FIRE community. Although we’ve approached our Semi-FI (if our situation could be called that) journey from a different angle to what you’ve stated, the benefits remain. More self directed time available with increased financial resilience. Keep the posts coming!! 🙂

    1. Thanks for sharing Matt, that’s fantastic! It’s always great to hear examples of how people are putting stuff like this into action and making their lives better 🙂

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