Perhaps you are in your 40s and have moved up the career path in a short span of time. Adopting the good financial habit - of saving and investing aggressively - early in life has now taken you closer towards your retirement goals. And, soon you are contemplating hanging your boots to pursue your long-cherished dreams. Wait! Retiring early with a sizable retirement nest is commendable. But that doesn’t necessarily preclude any shortfalls in the future.
So, how about semi-retiring? As in, working part-time or intermittently during the time of retirement to cover your daily expenses, while letting your retirement kitty grow.
Following things might upset your financial applecart and underscore the need to semi-retire:
Long life span
Thanks to the advancement of medical science and technology, the lifespan, of human beings, has risen consistently. The average lifespan of Indians is expected to go up from 70 to 81 years sooner rather than later.
An unexpected long lifespan can have an impact on your retirement calculations. For instance, a drawdown rate of four per cent of your retirement nest assumes 25-30 years of retirement life. Any elongation of life span would imply the need for a bigger corpus. Semi-retiring will give you the necessary levers to make midway course corrections and keep going.
Rising medical costs
Medical costs are rising. A critical illness can burn a hole in one’s pocket. Treatment and medication costs range from Rs 5-30 lakh, as of today for such critical illnesses.
While medical insurance provides financial indemnity, it also comes with a fine print. For instance, insurers might not cover existing diseases or provide cover for some diseases only after a time lag. In such cases, you need to be prepared for a worst-case scenario. Your retirement calculations will have to factor in this.
Better quality of life
Sometimes, it is not just about money but the need to stay active and engaged with the world. Working – albeit part-time – gives a sense of purpose and challenge which in turn keeps mind and body sharp.
Often, not saving enough leads to a compromise in lifestyle post-retirement. It need not be the case if you are earning even in your retirement years.
So, how do we semi-retire?
You can take a part-time job with your ex-employer, which is perhaps easier. If not, you can look towards working in non-profit organizations or other industries where your skill sets can be productively put to use.
Alternatively, you can look for consulting or freelancing jobs in your area of expertise.
Before you semi-retire, make a budget plan. How’s the household budget expected to be after you quit your full-time job? How much do you expect to earn from your consulting work? Will some expenses go up or come down? Look at major spending categories and make necessary adjustments to live within your means.
Test it out
Of course, all this is on paper as yet. Perhaps you underestimated the travel bills in your new location. The best approach, therefore, would be to stay put with your current job, while tracking your actual spends for about six to 12 months before you actually semi-retire.
Importance of equity
The standard retirement strategy of investing in safe and conservative assets might not preserve your wealth. This is because investments into bonds and cash equivalents stand the risk of losing their purchasing power when you withdraw. By investing into growth assets, such as equities, you not only stand a better chance of beating inflation but also in the process increase the chances of your retirement nest egg keeping pace with your life span.
So, increase the proportion of equities in your retirement portfolio to the necessary percentage (this will vary depending on your needs and ability).
The best part of being semi-retired is that you stay active and socially engaged while enjoying better quality of life. The extra income in turn provides the necessary cushion to let you keep pace with your retirement nest.