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Guide to working less and living more

Key takeaways

  • Think through your long-term financial needs before embarking on semi-retirement.
  • To make it work, know exactly how much money you spend and where you can cut back if necessary.
  • Understand the costs of health care once you leave an employer’s plan.
  • Do some self-reflection to determine what you want to get out of semi-retirement.

Katie Schwartz is basking in her semi-retired life. Untethered from a full-time schedule, she runs her speech coaching business during hours that work for her, giving her the flexibility to travel and live each day her way.

“I work part time and virtually, on my schedule, with great clients, and take vacations when I please,” she says. “I get to do what I love.”

Schwartz is among the many who’ve ditched the daily grind but weren’t ready for full-fledged retirement. By downshifting to fewer hours and less responsibility, semi-retirees still pull in an income while getting more time to spend on family, friends, hobbies, volunteer work, and travel.

But as Schwartz can attest, achieving a successful semi-retirement takes some foresight. It’s best to begin planning—and saving—during your wealth accumulation years to capitalize on employer benefits and the power of compounding. Schwartz, a former school speech pathologist, says she proactively considered her future goals. “I took that job knowing I was going to need really good benefits, such as a pension,” she says.

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Here are 5 key steps to consider to help you achieve your semi-retirement bliss:

1. Understand your long-term financial needs

Semi-retirement can take on various forms, such as working reduced hours for an existing employer, transitioning to a money-making side gig like blogging, freelance writing, or consulting.

While semi-retirement can provide more work-life equilibrium, underestimating your long-term financial needs can tarnish the golden years of actual retirement. It’s also important to know what you’ll give up when quitting full-time work, especially if you work for an employer that provides generous benefits.

“You get so many things when you’re working in a full-time job,” says Aditi Sharma, a vice president in Fidelity's Financial Solutions. The list can include employer contributions to retirement accounts, dental, life, and disability insurance, a health savings account (HSA) or flexible spending account (FSA), and potential profit sharing.

“You’re leaving "free money" on the table,” Sharma says. “That’s something you really need to take into consideration.”

Prepare for semi-retirement while you are working full time

To counteract those losses, semi-retirees often need to make major adjustments earlier in their lives.

Many maximize contributions to health savings plans and 401(k)s before leaving a full-time job. They also slash spending, pay off significant debt, and often downsize their housing. Some create passive income from sources such as rental properties, dividend stocks, or online-based businesses that get advertising revenue. In 2019, at age 39, Christina Gawlik sold her belongings and “downsized to a suitcase and a daypack to live a nomadic lifestyle.”

Gawlik, now semi-retired, is self-employed and runs an editorial services business that she launched in 2017. She has contractors perform client services while she manages the projects from wherever she is currently living. She invested the $127,000 profit from the sale of her house and earns royalties from previous work, as well as dividends and interest from her investments.

“I am actively pursuing my life goals of living around the world, learning and exploring,” she says. “And I’m making the most wonderful friendships and connecting with people that I would have never met if I stayed in a more traditional lifestyle.”

2. Plan out your future income sources

While Gawlik made a big life shift, other semi-retirees want to ease into the next work phase with few changes to their current lifestyle.

Whether your goal is to travel the world or have more time to do gardening in your backyard, your first step is the same: “Get organized and create a plan,” says Ryan Viktorin, CFP, vice president and financial consultant in the Framingham, Massachusetts, Fidelity Investor Center.

Examine your current income, savings, spending habits, and debt. Consider how long you’d like to work full time before entering semi-retirement and how long you plan to stay in semi-retirement before fully retiring.

Then do some forward thinking. Plot out what expenses will change between now and retirement. For instance, will your mortgage be paid off? Will a child be independent and supporting themselves?

Then plan out even further. Understand how much money you’ll need in retirement and what income sources will come in during those years. “You have to know what the cash flow is going to be,” says Viktorin.

Crunching all these numbers can feel overwhelming. But don’t let it scare you off from planning a move to semi-retirement if that’s your goal. Instead, seek the help of a financial professional.

A financial professional can review your information, then stress-test different scenarios. They can go through investment mixes to consider and talk about what to anticipate in the coming years, factoring in longevity and potential market downturns.

“The markets will always be volatile,” says Viktorin. “You want to make sure that you’re mentally prepared, and your financial plan accounts for the fact that not every year is going to be a great one in the markets.”

3. Understand current spending

Depending on your age and financial situation at the time of semi-retirement, you may not be able to withdraw from retirement accounts. In order to fund your full retirement, those accounts may need to have the chance to keep growing—plus, penalty-free withdrawals from retirement accounts generally are not available until age 59½.

That's the case in our hypothetical illustration: Mike is planning to take a step back from work in the future to have more time for the things he wants to do.

His Fidelity financial consultant models his options for him in 2 scenarios: semi-retiring at age 55 and age 58.

The good news is that his retirement is on track according to Fidelity's retirement preparedness measure, and that boosts his odds of success. Mike can stop contributing to his retirement accounts when he semi-retires.

See where you stand: The Fidelity Retirement ScoreSM

If he waits until age 67 to claim Social Security and start withdrawing from retirement accounts, he'll have a great shot at a fully funded retirement in which all of his essential expenses can be covered. The main hurdle will be reducing his spending during the semi-retirement period.

Read Viewpoints on How to spend less in retirement

His Social Security benefit will likely go down slightly if he semi-retires. If he worked his current job until age 67, he could expect about $33,500 a year from Social Security. If he semi-retires at age 55 or 58, he could expect $31,500 or $32,000 respectively.

"In general, discretionary spending is about 20% of people's spending. Mike is spending more than he thinks he will earn in semi-retirement so it may take a big move like downsizing for this to work for him—but it could be possible," says Can Lu, a director in Fidelity's financial solutions team.

IMPORTANT: The projections or other information generated by the Planning & Guidance Center's Retirement Analysis regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results. Your results may vary with each use and over time. For hypothetical illustration only. Retirement income is based on estimated Social Security and estimated withdrawal amount from retirement savings after age 67.

The Social Security estimate assumes the hypothetical person's age is 48 and he earns $70,000 in annual income and that he will be claiming Social Security at his full retirement age of 67. Further assumptions are 4% income growth and 30% income reduction during semi-retirement at age 55 or 58.

Estimated withdrawal amounts are Monte Carlo simulations based on historical asset class returns and are not recommendations. It assumes the $300,000 balance is invested in a target date fund, and a 15% saving rate until semi-retirement, and then 0% saving rate during semi-retirement. Withdrawals begin at age 67 with a 10% effective tax rate in retirement and a plan to age of 93. See the methodology footnote* below for more.

All numbers are in today's dollar and rounded down to the nearest $1,000.

Source: Fidelity Investments.

4. Learn about your health care options

Health care coverage is one of the most important considerations when contemplating semi-retirement, says Sharma. “Understand the different health coverage options that you will have at your disposal before you leave your employer.”

Possibilities include going onto the insurance of a working spouse, continuing an employer’s plan under COBRA (which lasts 18 months), enrolling in a plan through an Affordable Care Act marketplace, or getting private insurance.

If you want to remain with your existing company and work reduced hours, ask if they offer a phased retirement or another plan where you can keep your existing health insurance.

Viktorin offers another approach. “Maybe you go work at a local coffee shop purely for the health benefits, or at a bookstore or garden store, doing something you like, and also getting health care,” she says.

5. Think through your “why.” What do you hope to get out of semi-retirement?

Doing the financial legwork is crucial, yet it’s also vital to do some self-reflection before you exchange full-time work for semi-retirement.

“Understand your ‘why.’ Why do you want to semi-retire? What are the goals and purpose?” says semi-retiree and world traveler Gawlik. “Understand what you are retiring to, not from.”

In making her transition, she received more flexibility and freedom. And recent life events reassured her that she made the right choice.

“The pandemic was a major reason why semi-retirement is important to me,” says Gawlik, adding that in the last few years, she’s lost friends and family to COVID, as well as cancer, suicide, and heart attack.

“So much death from loved ones ages 32 to 79, proved to me how short life is,” she says. “And today, I say, ‘yes’ to anything that truly excites and interests me, and politely decline invites or opportunities that I’m not interested or passionate about. There’s no time for doing things you don’t want to do anymore.”

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This information is intended to be educational and is not tailored to the investment needs of any specific investor.

* Methodology

The Tool uses a Monte Carlo simulation-based approach to estimate the likelihood of a particular outcome based on a historical performance analysis of asset class returns. The historical performance analysis takes into account a range of potential returns for each asset class, their volatility, correlations between them, and other factors, using benchmark returns from Morningstar, Inc., not your actual investments, and hypothetical market return scenarios or simulations.1

  • Domestic equities are represented by the S&P 500® Index from the year 1926 through 1986 and the Dow Jones U.S. Total Market Index from 1987 through the last calendar year. The S&P 500® Index, an unmanaged market capitalization– weighted index of common stocks, is a registered service mark of Standard & Poor’s Financial Services LLC.2
  • Foreign equities are represented by the S&P 500® Index from 1926 through 1969, the MSCI EAFE Index from 1970 through 2000, and the MSCI ACWI (All Country World Index) Ex USA Index from 2001 through the last calendar year.3
  • Bonds are represented by U.S. intermediate-term bonds from 1926 through 1975 and the Bloomberg Barclays U.S. Aggregate Bond Index from 1976 through the last calendar year.4
  • Short-term assets are represented by 30-day U.S. Treasury bills from 1926 through the last calendar year.

Morningstar, Inc., is an independent provider of financial information. Morningstar does not endorse any broker-dealer, financial planner, insurance company, or mutual fund company.

2 S&P 500® Index, an unmanaged market capitalization– weighted index of common stocks, is a registered service mark of Standard & Poor’s Financial Services LLC.

3 MSCI EAFE Index is a stock market index that is designed to measure the equity market performance of developed markets outside of the U.S. and Canada. It is maintained by MSCI Barra. The MSCI ACWI (All Country World Index) Ex USA Index is a market capitalization-weighted index that is designed to measure the investible equity market performance for global investors of large and midcap stocks in developed and emerging markets, excluding the U.S.

4 Bloomberg Barclays U.S. Aggregate Bond Index is a market capitalization-weighted index, meaning the securities in the index are weighted according to the market size of each bond type. Most U.S. traded investment grade bonds are represented. Non-taxable municipal bonds and Treasury Inflation-Protected Securities are excluded due to tax treatment issues. The index includes Treasury securities, government agency bonds, mortgage-backed bonds, corporate bonds, and a small amount of foreign bonds traded in the U.S. The Bloomberg Barclays U.S. Aggregate Bond index is an intermediate-term index.

Indexes are unmanaged and it is not possible to invest directly in an index. Annual returns assume the reinvestment of interest income and dividends, no transaction costs, no management or servicing fees (except for a variable annuity fees), and the rebalancing of the portfolio every year. Performance returns for actual investments will generally be reduced by fees and expenses not reflected in these hypothetical illustrations.

The Tool graphs results based on how an asset mix may have performed in a certain percentage of the simulated market scenarios. These percentages are called “confidence levels.” For example, the default confidence level is 90%, which we consider “very conservative” market performance. This means that in 90% of the historical market scenarios run, a particular asset mix performed at least as well as the results shown. Conversely, in only 10% of the historical market scenarios run, a particular asset mix failed to reach the results shown. Fidelity uses this 90% figure so as to err on the side of a more conservative estimation of future market performance. Results are available for viewing at the 50%, 75%, and 90% confidence levels as described in the following chart:

Market conditions and performance assumptions

If markets perform significantly lower than historical averages, the performance assumptions fail 10 out of 100 times, and meet or exceed performance assumptions 90 out of 100 times. The confidence level is 90% (significantly below average).

If markets perform lower than historical averages, the performance assumptions fail 25 out of 100 times, and meet or exceed performance assumptions 75 out of 100 times. The confidence level is 75% (below average).

If markets averages continue, the performance assumptions fail 50 out of 100 times, and meet or exceed performance assumptions 50 out of 100 times. The confidence level is 50% (average).

Investment decisions should be based on an individual’s own goals, time horizon, and tolerance for risk.

Investing involves risk, including risk of loss.

Target Date Funds are an asset mix of stocks, bonds and other investments that automatically becomes more conservative as the fund approaches its target retirement date and beyond. Principal invested is not guaranteed.

Stock markets are volatile and can fluctuate significantly in response to company, industry, political, regulatory, market, or economic developments. Investing in stock involves risks, including the loss of principal.

Views expressed are as of the date indicated, based on the information available at that time, and may change based on market or other conditions. Unless otherwise noted, the opinions provided are those of the speaker or author and not necessarily those of Fidelity Investments or its affiliates. Fidelity does not assume any duty to update any of the information.

The information provided herein is general in nature. It is not intended, nor should it be construed, as legal or tax advice. Because the administration of an HSA is a taxpayer responsibility, you are strongly encouraged to consult your tax advisor before opening an HSA. You are also encouraged to review information available from the Internal Revenue Service (IRS) for taxpayers, which can be found on the IRS website at You can find IRS Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans, and IRS Publication 502, Medical and Dental Expenses, online, or you can call the IRS to request a copy of each at 800-829-3676.

Withdrawals of taxable amounts from a 401(k) are subject to ordinary income tax, and, if taken before age 59½, may be subject to a 10% IRS penalty.

Fidelity does not provide legal or tax advice. The information herein is general in nature and should not be considered legal or tax advice. Consult an attorney or tax professional regarding your specific situation.

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