Author Topic: early semi-retirement  (Read 8665 times)

jcrites2

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early semi-retirement
« on: May 10, 2016, 10:46:06 PM »
Are there any threads about early semi-retirement?  For example if I save 65% of my income now and would normally need 10 years for FI, how about working for 5 years and then working part time after that?  Any articles or advice on this theme?

Retire-Canada

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Re: early semi-retirement
« Reply #1 on: May 11, 2016, 08:28:31 AM »
Are there any threads about early semi-retirement?  For example if I save 65% of my income now and would normally need 10 years for FI, how about working for 5 years and then working part time after that?  Any articles or advice on this theme?

My journal is basically a plan/report on how to downshift to FIRE. I'm too old to hit my conventional 4% SWR FIRE $$ target without working through the prime of my life. That seems like a poor trade off to me so instead I'm going to save as much as I can between now and 2018 then I'll downshift a bunch and let my investments grow while I enjoy a lot of time off to recreate and socialize with my friends.

http://forum.mrmoneymustache.com/journals/retire-canada-a-west-coast-sporty-adventure!/

Although my plan was to work FT between now and 2018 I had an unplanned downshift this year due to contract changes. I'm working 30hrs/wk Mon-Wed. I was chomping at the bit to get back to FT work, but the longer this 3/4FT gig has gone on the more I am enjoying it. I'm also still hitting my monthly savings goals because I've reduced my spending aggressively. If an attractive FT option comes along I won't say no, but I'm not motivated to hunt one down at the moment with summer's full glory upon us here on Vancouver Island. As fall rolls around I'll probably put some more energy into it as I wouldn't mind turbo charging my savings program.

If I was doing a conventional 4% SWR I'd be shooting for $40K/yr/$1M. Since I am coming at this late and I don't want to work FT any more than necessary I'm think of doing a variable WR plan with a range of $30K - $60K/yr depending on market performance. cFIREsim says historically my results would have been:

- $750K = 98%
- $700K = 94%
- $650K = 81%
- $600K = 73%
- $550K = 64% [where I am at currently]

Working 3/4FT has opened my eyes to how relaxing it can be to work, but not too much. I can drop to 50%FT and probably still save a few bucks a month although it wouldn't be much. So I'll keep plugging away at my savings through 2017 and take stock in 2018. Hopefully I can find an acceptable 50%FT contract/job and just let my investments grow a bit more.

My GF will retire with a nice pension in 10yrs so ideally I'll be fully FIREd by then as well. Obviously a lot of this is going to come down to what the market does. I can save/invest ~$30K/yr so I should hit $600K by the end of 2017 just from savings. Say 5% returns with dividends in 2018 - 2020, but no new savings and I'm up around $765K. Of course the market could crash by 30% in 2020 as well. Who knows?

Rather than get tied up in all the things I can't control I'm spending my time optimizing my spending, saving as much as I can, following my investment plan and enjoying my life. Sooner or later I'll get up into that $750K-$1M range and in the meantime I'll make the most of the free time I can carve out. :)
« Last Edit: May 11, 2016, 08:35:43 AM by Retire-Canada »

chasingthegoodlife

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Re: early semi-retirement
« Reply #2 on: May 11, 2016, 02:22:03 PM »
My plan is to work full time until I get to my bare bones number, then work part time  for a while and let my investments grow a little more for extra security. I enjoy my job (social work) and would likely do similar volunteer work after FIRE anyway so I think this will work for me. How long I'll stay part time depends a lot on the market, how much I'm enjoying the work, and what my partner wants to do.
Part time work could mean working a 6 month contract then renting our house out for a year and heading overseas for some slow travel, who knows.
Looking forward to hearing others' responses.


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AnEDO

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Re: early semi-retirement
« Reply #3 on: May 11, 2016, 07:16:57 PM »
My wife and I have similar plans.  We've built up the assets and are content to just let them grow.  We both work full time as engineers but are looking for opportunities to do contract work either part time or for 3-6 months at a time.  To get to this point, we have lowered our cost of living, have no loans and have a good emergency fund in place.  We also have multiple streams of income from sources other than work. Eventually plan to start converting some of the IRA funds to Roth as we wind down the earned income.

jcrites2

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Re: early semi-retirement
« Reply #4 on: May 11, 2016, 10:11:39 PM »
Thank you.  These are all helpful.  I like the idea of downshifting and enjoying a bit of my life  earlier if possible.  I suppose it will be how much can I save in the next five years and can I find part time work to pay the bills and get me by after that.

Retire-Canada

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Re: early semi-retirement
« Reply #5 on: May 12, 2016, 07:22:18 AM »
Go for it! The nice thing with a gradual graduated approach to FIRE is that you can adjust as needed along the way. If you are sick of FT work in 4yrs instead of 5yrs you can downshift then. If markets do really well for you the downshift might be short or you may find that you enjoy working 10-15hrs/wk and full-FIRE isn't your target anymore.

You'll see a lot of one-more-year syndrome on these forums because the traditional FIRE path is to hit a target $$ and jump out of the plane the pull the ripcord on your FIRE parachute. That takes a lot of nerve and belief in your plan because it feels so all or nothing.

The downshift is less dramatic and more easily reversed so it's less challenging to the psyche of us "normal" FT working folks who've been churning away at our jobs for a long time.

Good luck!

Cassie

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Re: early semi-retirement
« Reply #6 on: May 12, 2016, 12:37:27 PM »
We have been semi-retired for 4 years and love it. I work from home on my computer about 10-15 hours/week. I can do the work from anywhere if I have internet so have done it while traveling too.  WE are alot older but didn't enjoy f.t. retirement.

therethere

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Re: early semi-retirement
« Reply #7 on: May 12, 2016, 12:46:22 PM »
I've been shifting our goal to this type of mindset too. I can't fathom working FT in a cubicle for the 12+ years it would take to completely FIRE on our current spending. New goal is PT work, lower paying more enjoyable FT work (something outside or working with people), or partial year work with 3-6 month contracts. I haven't figured out any timelines, targets, or exactly how we will get there yet. But thinking about full FIRE was too stressful for me because I couldn't wait. I want to be there now! I think our first step is to have enough in retirement accounts that it should grow to support us for a full retirement at age 60. Then our annual income requirements can drop a bunch if we aren't trying to max out 401k's. We just hit 50% towards this target in April.

I imagine once we start exploring other work environments we would naturally become more frugal in our spending. Thus lowering our necessary stache even more. We shall see. I crave drastic change every 5 years or so.
« Last Edit: May 12, 2016, 02:18:52 PM by therethere »

Full Beard

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Re: early semi-retirement
« Reply #8 on: May 12, 2016, 02:06:54 PM »
This is kind of my way of thinking as well.  Right now I live in a HCOL area and I'm planning on working another 7 years for the government and stashing as much as I can pre-tax.  Then I'll sell my house and use the proceeds to fund several years of living expenses in a LCOL area.  I've always wanted to be a scratch golfer so I'm thinking I would take the first year off to play golf full time until I get to that level.  I'm okay with finding part-time work after that to supplement the remaining cash from the home sale.  That first year off might be enough to recharge me into going back to working full time somewhere that is meaningful to me.  There are a lot of unknowns between now and then but it's nice to have options.   

Beardog

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Re: early semi-retirement
« Reply #9 on: May 12, 2016, 04:28:08 PM »
I just started early semi-retirement with a perfectly adequate but not overwhelming large stash.  I have alot of experience in my field and it is difficult to hire people who both know my industry and have the niche technical skills involved.  I've been offered a contract for one year part time.  If it works out well, they will extend my contract at the end of the contract.  Given my particular work situation, it is highly likely that I can continue in part-time mode (with all benefits) for the next 4-5 years at least it I want to.

So if you want to go part-time with your current employer, try to be a solid employee with strong experience and good skills and your employer might just go for it because of the difficulty of training someone to your level.  It would take a new hire 10 years at least to be as productive as I am in a part time capacity.

pdxvandal

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Re: early semi-retirement
« Reply #10 on: May 13, 2016, 12:14:10 AM »
I just started early semi-retirement with a perfectly adequate but not overwhelming large stash.  I have alot of experience in my field and it is difficult to hire people who both know my industry and have the niche technical skills involved.  I've been offered a contract for one year part time.  If it works out well, they will extend my contract at the end of the contract.  Given my particular work situation, it is highly likely that I can continue in part-time mode (with all benefits) for the next 4-5 years at least it I want to.

So if you want to go part-time with your current employer, try to be a solid employee with strong experience and good skills and your employer might just go for it because of the difficulty of training someone to your level.  It would take a new hire 10 years at least to be as productive as I am in a part time capacity.

Damn, you're amazing.

Beardog

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Re: early semi-retirement
« Reply #11 on: May 13, 2016, 07:24:17 AM »
I just started early semi-retirement with a perfectly adequate but not overwhelming large stash.  I have alot of experience in my field and it is difficult to hire people who both know my industry and have the niche technical skills involved.  I've been offered a contract for one year part time.  If it works out well, they will extend my contract at the end of the contract.  Given my particular work situation, it is highly likely that I can continue in part-time mode (with all benefits) for the next 4-5 years at least it I want to.

So if you want to go part-time with your current employer, try to be a solid employee with strong experience and good skills and your employer might just go for it because of the difficulty of training someone to your level.  It would take a new hire 10 years at least to be as productive as I am in a part time capacity.

Damn, you're amazing.

Hey, there's got to be some benefits to getting old and having experience!  Believe me, I'm painfully aware that I'm not up to date on the latest technology.  So that's a major downside to my situation.

Didn't mean to sound self-aggrandizing!  I have always felt at the mercy of the work world throughout my life so it's nice to feel that I have a little power for a change as I wind down my work life and head off into full retirement.

oldtoyota

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Re: early semi-retirement
« Reply #12 on: May 14, 2016, 10:38:29 AM »
We have been semi-retired for 4 years and love it. I work from home on my computer about 10-15 hours/week. I can do the work from anywhere if I have internet so have done it while traveling too.  WE are alot older but didn't enjoy f.t. retirement.

Nice to hear this perspective. =-) I think I will feel the same.

ender

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Re: early semi-retirement
« Reply #13 on: May 14, 2016, 10:41:56 AM »

Classical_Liberal

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Re: early semi-retirement
« Reply #14 on: May 14, 2016, 03:18:42 PM »
I made a recent post on the topic, now modified with a couple different thoughts since I'm still actively researching this possibility. I'm 39, single without kids and am a nurse, relatively new career I still somewhat enjoy. 60 to 65 % savings rate. I will have the option of loading all of a year's work into a full time three months or doing it part time through the year. I realize not everyone has a career that they still somewhat enjoy, or one that allows for this type of flexibility of employment.

This is essentially my plan, still a couple years away from execution.  Save about 12X spending, after that, earn enough to live, but not to save unless I find a job I thoroughly enjoy working.   I assume an average 3 percent real growth on any money saved over the long term.  This will have a doubling effect in 25 years when I reach "normal retirement" age & I'm eligible for SSI.  At which point I'll be sitting at 4 percent rule, plus SSI with a 25 % chance to live 25 more years.  I've run the numbers on Firclac/Firesim & monte Carlos. Calculating 50 percent of SSI benefits, even with adding in more costs for medical, this will work at near 100%.

IMO this plan "safer" than full FIRE at 4 percent for the following reasons:

1) When the market DOES get hit really bad at one or multiple points in the 25 year period of continued income, the option exists to ramp up work in the short term to take advantage of low equity pricing.  This, of course, will be totally optional, but if one feels like working quarter time until traditional retirement is too much for their frail old bones, she could do it.  Plus everyone loves a deal!

2) Diversified assets along with diversity due to income.  If a bad inflationary periods hits, income should rise to compensate.  As a result, there is no need to have a significant amount of low yielding assets such as TIPS or gold (I know controversial) in a portfolio to guard against inflation. This should help increase returns.

3) Continued employment provides one security they will not become obsolete in a desired field.  This is the often recited argument of a return to work situation for an early retiree, better to earn more now and be safe vs return to work for a lower wage later.  At worst, I only have to explain a year "sabbatical" in between jobs or tell my PT employer I want more hours, easily done.   If all all assets take a shit, I can always resume work full time at my current income levels (inflation adjusted) without missing a beat. 

4) Avoid the risk of "overworking".  The forum contributor named Sol regularly points out how often the 4% rules ends up making people work too many extra years for no reason (I do not want to put words in his mouth, but this seems to come more from his posts than anyone else).  If, in fact, a semiretiree sees better than expected real returns of 3%, her stache will grow to FI levels more quickly.  She can then choose to move into full retirement at any time.  Had she worked to 4%SWR, subsequently gets great returns,  she can never have her time back, she'll just die uber rich.

5) Sequence of return risk virtually eliminated. This is by far the greatest risk of FIRE failure.  If there is a poor initial sequence of returns... great!  See point #1.  Now our semiretiree gets to chose to work a little more, maybe half time, and save more when the CAPE is below the current 26.  This should provide better long term returns for new savings.

The semi retiree, in an approximent quarter time work scenario, isn't spending much more total time at work.  Anticipated returns, savings rate and income can have a HUGE impact on this equation. However, in a scenario like the current one, with high CAPE (ie lower anticipated 10 year returns) and someone with a high savings rate this is true.  This anomaly works as a result of the tax implications in earning less per year over a longer period. Less taxes offsets the loss of returns via a bigger stache earlier, this appears to amplify the higher ones income rises.  In this example, a person with 12X spending and 3% real returns making 100K gross has the following.  75k net income (single, maxing a 401K), saving 50K.  12X spending is 300K. At 3% real return it takes 5 years to reach 4%SWR.  25 years of work at .28 of full time on average to make the 25K net = 7 years of full time work. This assumes the long term real returns remain below mean, which probably wont be the case.  Higher returns down the road mean less income(ie working) is required.  Worst case, a semi retiree trades a few years of total work time for the opportunity to enjoy freedom now, work when it's most convenient, along with the added "safety" listed above. Many people seem to work to a lower SWR (3-3.5 %) to have similar "safety" anyway, which offsets the extra time a early semi retiree works.
 
IMO this is an AWESOME deal for anyone who started working towards FI later in life.  I absolutely request that people pick apart these arguments, as I want to see if I have flawed thinking.

Another option if OP is just super burned out, take a look at this post about sabbatical years.  It may be a realistic alternative to long term part time work, it's a well reasoned argument.  https://livingafi.com/2015/08/04/taking-a-gap-year/

Cassie

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Re: early semi-retirement
« Reply #15 on: May 14, 2016, 03:24:56 PM »
i earn about 25k/year from my p.t. gig which I really love. My hubby works some years and not others depending on if someone needs his expertise in engineering. Often though it ends up being f.t. for awhile and then not working at all.  He also recently wanted a p.t. gig delivering flowers for fun and found one that he works about 8 hours/week. The semi-retirement gives us a chance to try things we normally wouldn't have time to do. We are 57 and 62.

Retire-Canada

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Re: early semi-retirement
« Reply #16 on: May 14, 2016, 07:30:09 PM »
This is essentially my plan, still a couple years away from execution.  Save about 12X spending, after that, earn enough to live, but not to save unless I find a job I thoroughly enjoy working.   I assume an average 3 percent real growth on any money saved over the long term.  This will have a doubling effect in 25 years when I reach "normal retirement" age & I'm eligible for SSI.  At which point I'll be sitting at 4 percent rule, plus SSI with a 25 % chance to live 25 more years.  I've run the numbers on Firclac/Firesim & monte Carlos. Calculating 50 percent of SSI benefits, even with adding in more costs for medical, this will work at near 100%.

I like a lot of your plan....being a nurse is awesome for PT work/downshifting.

One thing that jumps out for me is if you work PT until you hit 25x annual COL + you'll get gov't benefits at that time and you only have a 25% chance of living 25 more years than I'd say you worked too much even PT.

You are essentially doing the 4% rule + lower fees than in the Trinity study + gov't benefits + you aren't likely to live the full 30yrs of the 4% rule.

I would PT work until your FIRE $$ = (annual spending - gov't benefits) x 25.

Also don't shoot for 100% success in cFIREsim...if you do you worked too much.  There so many other ways to fail FIRE that don't show up in cFIREsim it's foolish to keep working that long....instead get up into the 80's and call it good with a focus on all the non-money ways you need to be successful at FIRE.

Classical_Liberal

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Re: early semi-retirement
« Reply #17 on: May 14, 2016, 09:10:54 PM »
Thankyou for your feedback folks!

You are essentially doing the 4% rule + lower fees than in the Trinity study + gov't benefits + you aren't likely to live the full 30yrs of the 4% rule.

I would entirely agree to this, except I didn't realize the trinity study used fees at all. Down the road, closer to "normal retirement" age, society will have a better idea of what exactly to expect from social security and medicare for gen x'er/millennials. This would provide security to look at a 5% or greater withdrawal rate as my time for those benefits approaches.  Your advice on not  seeking 100% is sound.  I was showing the general robust nature of the plan, trying to convince myself more than anyone.

For #1, if the economy goes pear shaped, it is probably a difficult time to find work or get more hours. I've certainly heard anecdotes of part-time employees getting laid off in rough times. Though I don't agree with the argument, on the grounds of productivity of part-time employees, companies argue that, with benefits, part-timers are more expensive per hour worked (which is true, but ignores output per hour). So I believe a full time job is probably the best insurance in a recession, ignoring all else.

I agree with this.  However, compared to someone who has been out of work and FIRED for 10 years, I think the semiretiree has a better chance of getting/retaining employment in downturns.  I would argue in the specific case of medical care, not having jobs available in the near and middle term (5-10 years) is unlikely.  Yes, this could change in the long term and demand could drop creating a supply glut of front line healthcare workers. However, if one is still working in the field, at least part time, I would guess an astute observer could sense this change and take appropriate actions to ensure work continues, or savings topped off before the market gets too horrible.  I would agree if someone plans part time work in more unstable fields this is the greatest weakness of a semiretirement plan. Losing work in a downturn and being forced to sell assets, rather than buy, at critical times is equivalent to a sequence of return disaster for a fully FIRE'd person.

What I was saying is that part-time job income should allow one to tip more (or entirely) toward equities in one's portfolio. This should result in higher long term growth while keeping risk in check.
This is exactly what I meant in #2 above.  Ability to avoid requiring historically lesser performing assets to guard against inflation is a buoy to a semiretiree's portfolio. 

Please keep them coming!

JohnGalt

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Re: early semi-retirement
« Reply #18 on: May 14, 2016, 09:20:14 PM »
I have very similar thoughts to Classical_Liberal, though I break it out a little differently.

I look at FI as a spectrum rather than a hurdle, but I can put hurdles along the way.

Hurdle 1 is being FI at a minimal level. 
Hurdle 2 is being FI at my desired level.
There is a whole spectrum before, between, and after those hurdles. 

Prior to Hurdle 1, working in some capacity is required, though you get more options as you get closer.

Between Hurdle 1 and Hurdle 2, you probably don't need to even work full time.  If you were at a X% saving rate, you could probably just cut back to earning 100-X% and let the prior savings compound while you live off your part time income.  That part time work could be in many forms other than just fewer hours per week.  It could be long breaks in between working full time for some period.

Post Hurdle 2 you don't need to work to be comfortable but you might if you enjoy it or if there is some extra spending you'd like to do. Everything you earn is either extra buffer or completely optional spending money. 

To me - this is the thing I love about living a deliberate lifestyle.  You have options whether you've crossed some magic threshold or not. 
« Last Edit: May 14, 2016, 09:27:46 PM by JohnGalt »

JohnGalt

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Re: early semi-retirement
« Reply #19 on: May 14, 2016, 09:25:55 PM »
Thankyou for your feedback folks!

You are essentially doing the 4% rule + lower fees than in the Trinity study + gov't benefits + you aren't likely to live the full 30yrs of the 4% rule.

I would entirely agree to this, except I didn't realize the trinity study used fees at all. Down the road, closer to "normal retirement" age, society will have a better idea of what exactly to expect from social security and medicare for gen x'er/millennials. This would provide security to look at a 5% or greater withdrawal rate as my time for those benefits approaches.  Your advice on not  seeking 100% is sound.  I was showing the general robust nature of the plan, trying to convince myself more than anyone.


Based on the analysis I've done using cfiresim, I think a 6% withdrawal rate is pretty safe if you're willing to spend less (and/or offset with other earnings) in down years (including spending more in up years to bring the average back in line).

JohnGalt

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Re: early semi-retirement
« Reply #20 on: May 14, 2016, 09:37:22 PM »
Anyway, I'd love to hear anyone else's arguments for/against this strategy. I'd especially love to hear more about actual experiences with this approach :)

Maybe not exactly what you're looking for but I've been on this path for a few years.  Today, I'm closer to Hurdle 2 than I am to Hurdle 1 as I outlined above.

A couple years ago, I was just around Hurdle 1 and I needed a change because I was incredibly bored with the work I was doing.  I negotiated with my employer an option to take off (unpaid) 3 months per year.  I didn't stay long enough to really take advantage of it because another opportunity came along that actually interested me so I moved into a different, full time position.

I've already made the decision that this will be my last full time job for a while and am starting to think 2017 is the year I go into early semi-retirement for real.  With that in mind, I've stayed on very good terms with the employer who was willing to let me take 3 months off a year and am fairly certain I could work out 25% or 50% time with them.  I also have the right credentials and contacts in my field to pick up periodic independent consulting gigs. 

The goal will be to have a 0% savings rate - so I'm basically just earning what I spend and letting the savings grow themselves.
« Last Edit: May 14, 2016, 10:31:04 PM by JohnGalt »

BigBangWeary

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Re: early semi-retirement
« Reply #21 on: May 15, 2016, 03:59:41 AM »
I have/had similar ideas. Love this thread. I suppose my biggest worry is that we are all Japan now. In an era of low or negative interest rates I sometimes wonder if those of us pulling the plug too early will not see much help at all from the markets, even over 20+ year time frames.

With that being said, the our amazing ability to keep expenses low and find part-time income does make this approach attractive.

Mmm_Donuts

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Re: early semi-retirement
« Reply #22 on: May 15, 2016, 07:27:10 AM »
I'm early semi-retired, though didn't really plan to be. I started working freelance years ago, and initially was working on back to back jobs, essentially as a full time freelancer. As our stache grew, I felt more and more comfortable turning down jobs I didn't want.

Now our stache is about 12x our yearly expenses. I'm only working at about 1/4 - 1/2 our yearly expenses, and will continue this way until we sell our house and downsize. Downsizing the house will bring us to 25x expenses. Currently I work about 8-12 weeks a year at my freelance gig; the rest of the time I work on artistic projects. It's a great balance, IMO.

I'm interested in the sequence of returns risk argument. I see PT work as a way to test the waters in the first 5 years of retirement, while sequence of returns risk is at its peak. If the SHTF anytime in the next 4.5 years (we are a few months in), I can pick up a FT job and build our stache. Yes, jobs are harder to come by in a recession, but they would be much harder if I did not keep my freelance contacts and skills alive in the meantime.

Retire-Canada

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Re: early semi-retirement
« Reply #23 on: May 15, 2016, 10:16:19 AM »
Someone mentioned that part-time work could be hard to come by in a downturn. During the 2008 crash there were still lots of lower paying jobs being advertised where I live. They'd be in the $15-$20/hr range, but who cares? You are only doing this temporarily to avoid pull too much from your FIRE portfolio when equity values are low.

When I look around me at the general population I'm pretty confident I'm in the top 25% - 33% of humans around me so I don't see any problem out competing one of the others below me for a job as long as I am not overly picky on what that job is. Sure I'd rather make $65-$75/hr at a professional gig, but I'm not too proud to flip burgers or sell retail items.

As a reality check back in the early 2000's I had a gap in my contracts and had to either spend some of my savings or find a temporary 6 month job.  I walked down to one of the outdoors shops in town and was working the next day. Pay was crap, but at minimal expense levels it covered my rent/food and enough fun stuff I was fine. Having a low stress job that didn't involve a computer and let me get exercise walking all day was actually a lot of fun. When my $100K+ a year contract started up again I quit, but they begged me to stay on a shift a week to train the new people because I was so much better than the usual folks they employed.

And that's ^^^ if you are not working at all and have to find PT work.

One thing I am really curious about is how I will feel about working once I am down to 25% - 50% FT. I am doing 30hrs/wk now Mon-Fri getting paid 75% FT and I am already so much happier than FT. I work 3 days and am off 4 days and I can still save 40%+ after tax.

It's possible I won't want to quit working entirely if I can carve out most of the year for free time. I say that not having cracked 50yrs old and having a small stache. One thing I like about the downshift is that you can try it out gradually and if you decide you want to keep working a little you can.  I suspect what will happen is as my stache grows I'll get more and more picky about what work I'm willing to do until I'm not working at all.

I can also see myself wanting to do some work when I am old enough not to be travelling extensively and not doing all my sports. Going into an easy job a couple days a week in my 70's might be something I'll look forward to. Who knows?

JohnGalt

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Re: early semi-retirement
« Reply #24 on: May 15, 2016, 10:39:54 AM »
To me, the key take aways from sequence of returns risk are that most of the FIRE failure risk is tied up there and that there are 3 avenues to deal with.

1. Create a buffer.  This is where the 4%/3% withdrawal rates come from. The less flexible you are on the other 2 avenues, the lower your withdrawal date should be.

2. Diversification of investments.  If the stock market has a few bad years in a row early on but only half your money is there while the other half is in something like rental property that has a low correlation to stock market returns, you're less exposed to that particular sequence of returns. 

3. Flexible Withdrawal Rate.  If you can lower your withdrawal rate through some combination of reduced spending and additional income sources during down years, you can plan for a significantly higher overall withdrawal rate than the 4%/3% traditionally recommended because you don't need as much because you don't need as much buffer.  Play around with the variable withdrawal option at cfiresim - it will give you an idea for how this plays out. You can set a withdrawal floor (and ceiling) and control how sensitive the withdrawal movements with that range are to market conditions.  Lowering the withdrawal from your portfolio can be offset with either reduced spending or with other income sources so it lets you simulate a semi-retirement lifestyle.

Based on what I've seen, I believe most of the difference between an almost 6% withdrawal rate and the trinity study's 4% is due to sequence of return.  An average of nearly 6% withdrawal over 30 years has a high (98% if I remember right) success rate if the year to year withdrawal rate can vary between 3% and 9%.
« Last Edit: May 15, 2016, 10:42:12 AM by JohnGalt »

Life in Balance

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Re: early semi-retirement
« Reply #25 on: May 15, 2016, 01:45:58 PM »
Am following this with interest as more and more I think this is the path I want to take. Thanks to all who have posted their plans.

Classical_Liberal

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Re: early semi-retirement
« Reply #26 on: May 26, 2016, 04:52:15 PM »
This thread seems to have died out, makes me sad!  It seemed some good discussion/ideas/personal experiences with semiER were getting started.  I thought I’d post and see if there is any renewed interest. 

I’ve run some more simulations, both on cfiresim and a monte carlo to try and find a “sweet spot” for my plan, with rather surprising results.  My situation will be, essentially, get to asset level “X”, work just enough to cover expenses (about quarter time work) and let stash grow until FI or traditional retirement age.  For my situation that would be 23-25 years of semiretirement.

cfiresim (using historical data) shows that I would only need about 6X annual spending with a 25 year semiretirement period, followed by a “normal” 20 year full retirement period from age 67-87.  I get 95+ percent success rate (living past 87 to 95 I get to mid 80% success).  I also made the assumptions:  70 percent of my estimated SSI benefits will begin at age 67. Additional $500 in monthly medical expenses starting at age 65 with medicare.
 
The  monte carlo: SSI and additional medicare costs remained, but created a bit scarier scenario for returns.  I used a 4% inflation rate with a 3% standard deviation (I think we tend to underestimate future inflation rates because it has been so controlled in recent decades) and 7 percent returns (to simulate 4% real baseline) with a 12 percent standard deviation.  To reach a 90 percent success rate with the same time frame I would need about 10X annual spending saved at semiretirement.
 
Of note, my spending assumption is on the low end (maybe not so much for this site), its 20% above my current spending rate, so personally I’m very comfortable with it.  However, my assumed 70% SSI, even taxed at the max 85%, would cover over 40 percent of my living expense at age 67 and above.  Someone requiring more spending will get a lot more failures since SSI will cover less, more evidence of the power in decreased consumption.

Frankly, I assumed an early semiretiree who is already in his/her 40’s would need more of a stash to see such high success rates.  High success rates means; of course, in many scenarios an early partial retiree will reach FI well before age 67 and can take advantage of the things discussed above to move FI along a bit if they choose.  The whole thing has me excited.  I can probably act on this more quickly than I had previously anticipated.   After only a couple years of this lifestyle, getting debt free and establishing some decent F U money, now I have a real feeling semiretirement is within striking distance rather than a pie in the sky idea.

Has anyone one else interested in early semiER run scenarios like this for themselves?  Surprised with the results?  Are these assumptions missing anything?  Does someone think I am being too liberal or conservative in assumptions?

dragoncar

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Re: early semi-retirement
« Reply #27 on: May 26, 2016, 07:30:51 PM »
I just started early semi-retirement with a perfectly adequate but not overwhelming large stash.  I have alot of experience in my field and it is difficult to hire people who both know my industry and have the niche technical skills involved.  I've been offered a contract for one year part time.  If it works out well, they will extend my contract at the end of the contract.  Given my particular work situation, it is highly likely that I can continue in part-time mode (with all benefits) for the next 4-5 years at least it I want to.

So if you want to go part-time with your current employer, try to be a solid employee with strong experience and good skills and your employer might just go for it because of the difficulty of training someone to your level.  It would take a new hire 10 years at least to be as productive as I am in a part time capacity.

This is where I am, minus the "irreplaceable" nature of my employment.  I mentioned my initial thoughts on early semi-retirement here: http://forum.mrmoneymustache.com/welcome-to-the-forum/dial-down-to-fire-which-path-would-you-pick/

Basically, I went part time (with my savings rate dropping to around 50%) but I realized that my stache still grew at pretty much the same rate.  I might end up working a few extra years due to this but the flexibility it gives me is well worth it IMO.