Part-Time work and its relation to FI date

[beer-man]

Is there an actual formula to the relation between transitioning to part-time work and the time it will shave off my FI date. Part-time will allow me to keep my health insurance but will only supply 1/3 to 1/2 our monthly expenses. Also do any of you still contribute to 401k while transitioning to part time FI?
  Just curious how this factors into your numbers.

[Thegoblinchief]

You probably could make it into a single formula, but basically what you’re doing is reducing the stash you need to be FI.

If you’re subscribing to 4% WR, then the annual income offsets 25 times it’s value in assets required.

An alternate way to look at it that I got the idea from Kitces’ research is that in the average retirement a WR of around 7% is safe. Hit that number, downshift enough to cover expenses, see how the sequence of returns works. If the market is over the first 3-5 years you are very likely solid for the rest of your life to quit altogether or at least to downshift even further.

[Thegoblinchief]

That second approach is what my wife and I are currently planning, as neither of us will probably be earning nothing in retirement, so why wait until we’re at 4% WR to consider ourselves FI?

[MrMoneyMullet]

Agree with HOB. Why wait to have an awesome life (i.e. free of mandatory paid FT employment) until at full SWR? I didn't calculate a full FIRE date - I saved up enough to cover a traditional (age 65+) retirement then saved up enough cash for a sabbatical fund and will take a sabbatical, then work part time to cover living expenses.

If things go well, I can fully FIRE at some point prior to age 65. If things don't go well, I can get another FT job. Or, if I find something I would pour my effort into regardless of pay, it may become a full time job for reasons better than money.

Our situation is different than some, as we already have kids and I consider our time over the next 15 years to be worth a LOT.

[seattlecyclone]

My wife and I have been working three days per week for almost two years now. We still max out our 401(k)s. Before switching to part-time we were maxing out the 401(k)s and making pretty regular taxable investments on top of that. We haven't had much left over for the taxable investing lately, but that's fine. Once you get pretty close to FI, switching to part-time really doesn't change the projected date much. Past a certain point your FI date is determined more by investment performance than how much you continue to save.

[aGracefulStomp]

Yeah it's pretty insane - I had a lightbulb moment when I was playing round with the numbers on a spreadsheet and saw that going PT when I'm halfway to my FI goal only adds a few more years than if I was to work FT the whole way. I checked the numbers quite a few times because I didn't think that could be right, but it is!

It's also important to remember that many (most?) people do some form of PT work when they're FI. If you're working PT and it's work that you would be doing when you're FI anyway, then whether you're FI or not becomes an exercise in semantics. Going PT effectively means you can live your FI life way before you are FI.

Learning to actually sit down and do the maths when making any big financial decision is something I've learnt to do through this community and the FI mindset. More often then not, the difference in your numbers is very different to what you thought. For example I've been tossing up between two career paths - one that I don't mind and is higher paying at the start, verse one I really enjoy and is arguably more stable but will be less paying at the beginning. After putting in my estimated salaries, I've decided to go with the one that is initially less paying because the difference in working time was only a year.

Is there an actual formula to the relation between transitioning to part-time work and the time it will shave off my FI date. Part-time will allow me to keep my health insurance but will only supply 1/3 to 1/2 our monthly expenses. Also do any of you still contribute to 401k while transitioning to part time FI?
  Just curious how this factors into your numbers.

Beer-man, formula on excel is your friend here. I just wrote up a spreadsheet with two tables. Both tables have a column for the year, column for the stash at the start of the year, column for my contributions, column for the estimated investment return (I go with 6%), and a column for the stash value at the end of the year after my contributions and estimated investment return - the end stash value is used as the figure for the stash at the start of the next year. One table has contributions going right up until I hit my FI sum. The other table has my contributions go to $0 when the stash is half my FI sum. Keep an eye out for when your stash hits your goal, and then you can see the difference in years. You can also play round with the returns, so see what the returns are at worst case scenario (I usually go with 4% but you can go down) or see best case scenario (I go with 9% but you could go higher...I just don't want to get myself too excited haha).

[beer-man]

thank you for all the responses, can anyone point me to a excel spreadsheet that can calculate how part time work could affect my FI date?

[jlcnuke]

That second approach is what my wife and I are currently planning, as neither of us will probably be earning nothing in retirement, so why wait until we’re at 4% WR to consider ourselves FI?

Well, if you're "earning" more than nothing, that means you're working. To me, that isn't retirement... it's working.

Also, having higher than a 4% withdrawal rate "may" work out in some situation, but a 7% withdrawal rate has historically NOT worked out in a good percentage of situations, hence why having enough for a 4% SWR is considered to be FI and only having enough to cover a 7% WR is NOT considered FI. Using quick assumptions for a 7% withdrawal rate ($50k spend for 50 years, ~7% withdrawal rate from a $715k portfolio with $15k/year SS starting 14 years into retirement) 66% of the time the "retiree" didn't have enough money to retire and would have to go back to work or reduce their spending significantly to avoid running out of money.

That's not being "financially independent", it's "taking a sabbatical that has a small chance of not needing you to go back to work".

[Thegoblinchief]

Thanks for the visit, Internet Retirement Police.

You missed the nuance in my post about downshifting. Many, many folks here save until 3-4% and then for a variety of reasons still end up earning a decent amount of money after “retirement”. Look at MMM himself, lol. They're going to end up having worked for many, many more years than necessary.

My wife is also the sole earner currently, and has expressed no desire in ever fully retiring unless something drastically changes, so I consider that a number where I can tell her downshifting is an option, and we let the stash compound a bit further while not contributing anything or as much. If I can get some health issues of my own resolved, I will likely be earning $5-10k net or more each year once my time is not being devoted to teaching our kids.

I’ve been in the FIRE communities online for a long time, there’s no one cut and dry retirement scenario. The longer you see individual stories, the more nuance you see in how folks approach it.

[Bird In Hand]

thank you for all the responses, can anyone point me to a excel spreadsheet that can calculate how part time work could affect my FI date?

I've used http://www.firecalc.com or http://www.cfiresim.com for this type of analysis in the past.  I'd trust that more than a home-brew spreadsheet, but maybe that's just me.

In FIRECalc you can use the Pension Income/Off Chart Spending options under the 'Other Income/Spending' tab to model a period of PT income.  If you plan on making $40k a year for 10 years of PT work, then enter $40k as 'Pension Income' and then 10 years after that add $40k in 'Off Chart Spending'.

[Adam Zapple]

Beer man, I don't know how much number crunching you've done, but for a "back of a napkin" approach just subtract what you will earn (after taxes) at your part-time work from your expected monthly expenses in retirement.  Apply the 4% rule to that remaining number.

Let's say you will need $4000 per month to live in retirement.  If you work part time and earn $2000 per month after taxes, your savings need to be enough to cover the remaining $2000 per month ($24,000 per year).  Using the 4% rule, that would be $600,000.  Any number crunching beyond that is just to make you feel more secure in your decision but is not really necessary IMO.

Sorry if this is an oversimplification but it is really all you need for your BARE MINIMUM semi-FI number.  The downside of this approach is it is assuming you will continue to work part time in perpetuity.    It's more of a guideline for when its OK to decide to downshift to part time work.  As others have said, market conditions will dictate what happens beyond this point much more than how much you continue to contribute to retirement savings in your final years of work.  Maybe someone else can help figure out how you make the math work beyond that point.

[FIRE Artist]

Beer man, I don't know how much number crunching you've done, but for a "back of a napkin" approach just subtract what you will earn (after taxes) at your part-time work from your expected monthly expenses in retirement.  Apply the 4% rule to that remaining number.

Let's say you will need $4000 per month to live in retirement.  If you work part time and earn $2000 per month after taxes, your savings need to be enough to cover the remaining $2000 per month ($24,000 per year).  Using the 4% rule, that would be $600,000.  Any number crunching beyond that is just to make you feel more secure in your decision but is not really necessary IMO.

Sorry if this is an oversimplification but it is really all you need for your BARE MINIMUM semi-FI number.  The downside of this approach is it is assuming you will continue to work part time in perpetuity.    It's more of a guideline for when its OK to decide to downshift to part time work.  As others have said, market conditions will dictate what happens beyond this point much more than how much you continue to contribute to retirement savings in your final years of work.  Maybe someone else can help figure out how you make the math work beyond that point.

This calculation works great for those retiring at an age when they can draw from a defined benefit pension, but for part timers, it doesn't really work because it assumes that you are going to work at that part time job until you die...not likely unless you are unlucky and die when young enough to still be working. 

Now if the goal of the part time work is to replace today what you will eventually get paid in social security, then it may work for you. 

[mtnman125]

Bird in Hand outlined it above for firecalc

Figure out how much you are going to make in part time income (10k, 20k, etc) as "Pension Income"

Then- decide how long you plan to do the part time work (5y, 10y,etc), and then set same amount as above as "Off chart spending"

That step cancels out the first step for the remaining of the calculations.

Another method I use that may not apply to your position- I plan to Semi-Fire only enough to cover all expenses (no planned savings), so for that I use the "not retired yet" tab to test the affect of what 2, 5, 10yrs of part time work does.

[beer-man]

Wow thank you to all of you for the great info. CfireSim was exactly the type of analysis that I was looking for. What's nice I was able to run multiple simulations and they were saved so I could show my wife.
 The results are exciting and it looks like I could go part-time(24hrs) week in 3yrs and still have a 100% success rate. Comforting to see and dream about while i'm in the midst of a 72hr week work binge that has lasted the past 6 months.

[LessIsLess]

The results are exciting and it looks like I could go part-time(24hrs) week in 3yrs and still have a 100% success rate. Comforting to see and dream about while i'm in the midst of a 72hr week work binge that has lasted the past 6 months.

You don't need to drop to part time 24 hrs/week.  You need to drop to one full time job of 40 hrs/week.  You're working 2 full time jobs now, so that's what is killing your energy.

[beer-man]

I'm in the accumulation phase and at 33 working 72 hrs a week is what I choose to do to prepare for my slow down phase in a few years. Plus I work in health care in Florida and my employer is throwing OT at me at a $55hr rate. I'll take it while it's here, the snow birds will be flying back up north soon!