About Mr. SR
In case you didn’t read my intro to Mr. SR’s interview of me, I’ll reintroduce him here:
Mr. SR writes about personal finance, decision-making, and early semi-retirement at Semi-Retire Plan. He has been featured on MSN, Yahoo Finance, and Databox and holds a master of science degree in business marketing. Mr. SR is a fan of college football, Taylor guitars, and extra-large coffee mugs.
About Mr. SR’s guest post
Over at Semi-Retire Plan, Mr. SR writes about the advantages of early semi-retirement—particularly for those who may find early retirement intimidating.
“That’s the power of early semi-retirement — it unlocks early retirement for a new segment of people. People with moderate income and savings rates can retire early!”
– Mr. SR
I have admit—I really like the idea of early semi-retirement. In truth, it’s what most FIRE seekers end up doing once they reach FI. Very few of these young, ambitious people end up lazing on beaches for the rest of their lives!
Instead, they have grand plans to keep themselves busy with paid employment, passion projects, travel, and more. However, there are some key differences between FIRE and semi-retirement.
Those differences are what Mr. SR explains and contrasts in his guest post below. I hope you enjoy it as much as I did. Perhaps you’ll find yourself compelled to pursue early semi-retirement instead!
The FIRE Alternative You May Not Have Considered: Semi-Retirement
The FIRE movement (Financial Independence, Retire Early) has been a popular topic in the personal finance blogging world for the last 10 years or so.
It’s easy to understand why FIRE is so enticing. It empowers you to take control of your finances so you can build wealth and be free from the full-time work grind.
I think the FIRE movement is valuable and can be a great fit for some people, but there’s a certain amount of exclusivity involved. The FIRE movement can be intimidating and overwhelming for people that can’t reach those high savings rates of 50% or more and pay their bills.
But there’s another, less talked about option that can unlock early retirement for an even larger portion of the population—semi-retirement.
Intensity vs moderation
The intensity of FIRE
If the FIRE movement had an official slogan, it might be “I need to get out of this office job as soon as I possibly can!” FIRE adherents are markedly intense in their pursuit of financial freedom, often achieving savings rates of 50% of their income or more.
This is an incredible exercise of both earning power and self-control. As a reward, people in the FIRE movement are able to reach financial independence after a relatively small number of years. Imagine being able to fully retire at the age of 35 or 40!
For some people, I think this strategy can be a great fit. High earners with no dependents will have more flexibility with their disposable income and can prioritize investing to reach FIRE.
Moderation and semi-retirement
However, a few years ago as a recent college grad, I found FIRE to be overwhelming and intimidating. With my entry-level marketing salary in a small city, I could never save that much of my income.
Even now, I’m earning around the median salary for American workers and I’m married — so we’re in the advantageous position of having dual incomes. We want to be able to retire early and comfortably, but we are balancing multiple priorities with our money.
For my wife and me, giving, traveling, and occasionally splurging and enjoying life are all important. We give 10% of our income to our church and we make a point to take a few trips per year. We like to eat out once per week. And we don’t feel bad about it!
Right now, we’re saving about 20% of our income towards retirement. We won’t be able to fully retire in the next 5 or 10 years, but we’re balancing our incomes with saving, giving, and enjoying life in the short-term.
So, I’ve just established that we’re not achieving FIRE-level savings rates. But here’s what’s so powerful about semi-retirement: if you’re able to work part-time doing something you enjoy, you gain significant financial flexibility.
Let’s look at 2 quick scenarios here to compare. I’m going to over-simplify a bit, but it’s just to show a rough proof of concept.
Scenario 1—FIRE in 10 years
For the first scenario, let’s say you want to reach full FIRE and you know you need $50,000 per year to cover your expenses. Let’s use the 4% rule for simplicity.
Let’s also assume that your household is currently earning $100,000 per year, you haven’t started saving for retirement yet, and you want to reach FIRE in 10 years.
What would your savings rate need to be?
FIRE scenario—what savings rate do you need?
|Scenario 1—FIRE in 10 years|
|Current annual income||$100,000|
|Annual expenses in retirement, in 2020 dollars||$50,000|
|Target portfolio value needed to reach FIRE, using 4% rule||$1,250,000|
|Savings rate needed to reach this portfolio value, assuming 10% growth per year and 10 year time period (using financial calculator with annual compounding)||78% ($78,431 per year)|
Yikes! You would need a 78% savings rate — and that’s with a solid income of $100,000 per year.
Reaching FIRE over a short time period is hard and requires some extreme saving.
I’ll admit that I used some pretty intense assumptions. We had a short time period of 10 years and a high (but not crazy-high) income of $100,000. But ultimately, that’s the heart of the FIRE movement: intense dedication for a period to achieve full financial independence.
Scenario 2—semi-retire in 25 years
Now, compare to this semi-retirement scenario. Let’s assume that you’re targeting 25 years of working full-time before you semi-retire. You’re not in as much of a hurry because you’re taking a more moderate approach and spending money on things you enjoy along the way.
You’ve also decided that you can earn about $20,000 per year in income from your semi-retirement job.
There are lots of options here. Personally, I’m planning to teach at a community college. But if you can find any job or freelance work you’re passionate about, earn $20 per hour, and work 20 hours per week for 50 weeks per year… you can earn $20,000!
This is what I call Step 2 in the Semi-Retire Plan. You’ve retired from your full-time work to do part-time work you truly enjoy.
Assume you will still need $50,000 per year to cover your expenses. Your household still earns $100,000 per year.
What would your savings rate need to be?
FIRE scenario—what savings rate do you need?
|Scenario 2—Semi-retire in 25 years|
|Current annual income||$100,000|
|Annual expenses in retirement||$50,000|
|Remaining expenses that need to be covered by your investment portfolio||$30,000|
|Target portfolio value needed to reach FIRE, using 4% rule||$750,000|
|Savings rate needed to reach this portfolio value, assuming 10% growth per year and 25 year time period (using financial calculator with annual compounding)||About 8% ($7,626 per year)|
Honestly, as a personal finance blogger, I’m almost embarrassed to advertise that 8% number. I want to encourage people to be saving more than that!
Let’s also take into account Step 3 of the Semi-Retire Plan—later in life when you’re no longer interested in or able to work part-time.
We need to build an extra nest egg so that you can eventually completely stop working.
Let’s say you saved an extra $150,000 before your semi-retirement and your Step 2 lasted 15 years. If we keep assuming that 10% annual growth rate, you’d have an extra $626,587 (plus the $750,000 that you haven’t been over-drawing on) to support you during Step 3.
You may be thinking — what if I earn less than $100,000 in income? What if I want to work fewer than 25 years at my full-time job? What if I don’t want to work 20 hours per week during my semi-retirement?
I have good news for you. The best part about semi-retirement is its flexibility. You don’t even need a fully-fledged plan, for now! If you save intentionally now, you are buying yourself flexibility in the future.
To balance the moderation of the semi-retirement approach with intentional preparation for the future, I recommend the 20-40% savings range.
Even if you can’t reach those numbers now, just start saving what you can afford to! Your biggest ally is time, so just get started now.
Absolute vs flexible
The FIRE movement says “I’m quitting and I’m not going back!” Semi-retirement affords you much greater flexibility.
Certainly, the more moderate savings rates from not pursuing FIRE grant you more financial flexibility in the short-term while you’re working full-time.
Enjoy life now! In the financial planning community we tend to assume that we’re all going to live until we’re about 85 years old. So, therefore, we need to save for the future.
I agree that we should prepare for our later years, but the fact is that we’re not guaranteed 8 or more decades of life. There’s significant value in enjoying your life now! Seize the day. You’re not guaranteed a specific number of years of life in the future.
Even during your semi-retirement phase, if your investments perform poorly, you’ll have greater flexibility with a semi-retirement approach. You can increase your part-time working hours! Or cut your expenses.
Life is unpredictable, and semi-retirement gives you the flexibility to adjust.
Immediate vs gradual
One of the most frequent regrets I see on forums and blogs from people who reach FIRE is that it was so sudden. You’re working full-time for a decade or two, then suddenly one day you’re not.
If it’s not carefully planned for, FIRE can cause a real identity crisis—even boredom.
Not working sounds like the dream when you’re stressed and stuck in a cubicle. But after a few weeks or months, you may find that you want something to do to fill your time.
Some people who reach FIRE end up going back to work. There’s nothing wrong with this, of course, but if they had planned for this future income they could have left their full-time jobs even sooner!
Semi-retirement offers a balanced solution. Work part-time, but do something you enjoy. You don’t have to be stuck in a cube and you don’t have to be stressed out from long hours.
What’s best for your family and your goals?
The FIRE movement has done great things for the personal finance community and for people around the world. The hope and financial autonomy that it offers is exciting and has generated significant awareness and enthusiasm for investing. And for some people, FIRE is the best strategy available for their goals.
But I want to reach the people that feel how I felt. If you feel intimidated or excluded by the FIRE movement, you don’t have to be. If you can’t reach a 50% savings rate, you’re not unqualified for early retirement.
There are different retirement paths available, and you can choose what’s best for your family’s core values and goals.
I believe that millions of people could retire 10 or more years earlier than they realize, with some strategic planning and intentional saving.
Share your thoughts
What did you think of Mr. SR’s guest post? For me, it was pretty darned compelling—especially the focus on financial flexibility and enjoying your life now. Whether you’re pursuing FIRE, early semi-retirement, or traditional retirement, how could you not get behind that?
I’d love to hear your opinions—are you Team FIRE or Team Early Semi-Retirement? It’ll be fun and interesting to get a discussion going about this, so share your thoughts in the comments below!
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