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Semi Early Retirement - Where's Your Dough?
Old 04-13-2015, 04:09 PM   #1
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Semi Early Retirement - Where's Your Dough?

Those of you out there who are already semi-retired or are planning on a semi-retirement in your 50s--what's your financial setup?

I'm 49, married, no kids, I'm starting to think at least about cutting back at work sometime in the next couple of years.

I feel pretty good about my 401k/IRA retirement savings, alongside SS and a pension and with some properties that could be sold if things get hairy years from now.

With the sale of some inherited property closing soon, and another sale possibly lined up, I will have somewhere between $150,000 and $270,000 in cash in the near future.

I wouldn't *need* any of this money until I actually cut back my hours (not for another year at least). How would you handle/allocate this money with the thought of it being "bridge" money rather than needing to be socked away for another 10 years? Aggressive? Conservative? Mattress-ready? While a part-time salary could be $50k or more, I do live in a very high COL area.

My 401k is 80/20 right now. My small IRA is begging to be rebalanced. And with no kids, we are looking forward to spending down to zero (hahahaha).

Examples, advice, admonishment, all welcome.
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Old 04-13-2015, 04:16 PM   #2
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You will get answers all over the place... so in the end it will be up to you to decide what your are comfortable with...


If you do not have any money set aside to pay bills for awhile, then you should put some away...

If you do have money, I would just invest it like the rest of my portfolio.... why should this money be any different
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Old 04-13-2015, 04:22 PM   #3
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Originally Posted by Texas Proud View Post
You will get answers all over the place... so in the end it will be up to you to decide what your are comfortable with...

If you do not have any money set aside to pay bills for awhile, then you should put some away...

If you do have money, I would just invest it like the rest of my portfolio.... why should this money be any different
No difference because the money might be used sooner? Less time to recover from any downturn? Tax implications? That's what I was getting at--it'd be easy enough to just do a standard investment allocation with it, but I was wondering if people knew something I didn't about whether or not that's a good idea.

Money set aside for bills isn't a problem.
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Old 04-13-2015, 04:33 PM   #4
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I was semi-retired for many years, then fully retired in my late 50's. My portfolio is the same as it has always been: A passively-managed low-expense-ratio set of index funds allocated with about 60% in equities, 33% in bond funds, and 7% in commercial real estate invested very tax-efficiently in taxable, tax-deferred (IRA, 401(k)), and tax-free (Roth) accounts. It simply chugs along on auto-pilot unless I get an itch to market time some things as I often do. I discuss market timing and trades in my free newsletter: LOL!'s Market Timing Newsletter
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Old 04-13-2015, 05:01 PM   #5
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I'm 49 and am planning ER this coming January, I'll be 50.5

I currently have $940,000 in IRA's (Roth & SEP) and $860,000 in mutual funds. House paid off, no debt, kids on their own.

I'm selling my business on a 10 year contract this January, this will provide me with $55,000 annually. I also have $240,000 in retained earnings that I've socked away over the years (my emergency fund). I've been putting it all into Vanguard Balanced Fund and it's grown nicely. I plan on drawing this down over the 10 year period to supplement the sale of the business and I'll have more than I'm living on now by quite a bit. I just plan on drawing an even amount at the start of each year, eg: 1/10th the first year and 1/9 the next year......for 10 years til it's gone. I'm estimating $25,000 a year.

At the end of 10 years I'll be about 61 and will start drawing on the IRA's and taxable accounts, then draw SS at age 62.

I haven't taken work income into consideration, and I'm sure I'll have some for at least a few years after age 50.

This is my back of the bar napkin plan.
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Old 04-13-2015, 07:43 PM   #6
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I was semi retired for 8-10 years, and I kept my spending at income minus 401k contribution (spending < (income-401k cont)) until I got down to working 1 day a week. Then I started withdrawals from taxable accounts.
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Old 04-13-2015, 08:09 PM   #7
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When you cut back at work, will you need this money to live on, or will your reduced income still cover your costs (although maybe not enough extra to add to savings)?

Are you counting on any portion of this money to cover costs in the post-60 age or will SS and pension cover costs at that point?
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Old 04-13-2015, 08:26 PM   #8
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Originally Posted by Katiek View Post
When you cut back at work, will you need this money to live on, or will your reduced income still cover your costs (although maybe not enough extra to add to savings)?

Are you counting on any portion of this money to cover costs in the post-60 age or will SS and pension cover costs at that point?
My hope would be that, at least for the first few years of any cut back, I wouldn't need any of this money, or maybe just a smidge. I can see the possibility of going from full time to part time to *very* part time, with the salary stepping down--once I got to *very*, I'd need some of the money each month.

While it would be nice to still have some of it past 60 as a buffer, I am working on the assumption that my 401k/pension/SS/property failsafes will be plenty.
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Old 04-13-2015, 08:49 PM   #9
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One thing that I have done recently is to increase my 'cash' cushion... but I have it in ST bond fund so I get a bit more interest... I now have the interest moved to my checking account since I was always getting those wash sales if the interest is reinvested....


My last move (which was last month) was to now have all distributions moved to the ST bond fund.... so any div or cap gains will go to my cash account...
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Old 04-13-2015, 09:00 PM   #10
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You could consider a CD ladder of 5-7 years and then just re-up as they come due if you don't end up needing the cash. This is working good for me as I am retired and my DW is still working. I have enough maturing each year (January) to approximate our additional annual spending needs over and above her salary.
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Old 04-13-2015, 10:58 PM   #11
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I semi-retired at 49 (going down to a 3 day work week) once I reached my "minimum necessary" savings target. At this time my asset allocation was still pretty aggressive (around 80/20) and I used the ensuing several years to slowly rebalance to a more retirement-appropriate 55/45. That slow multi-year readjustment has been the best part of semi-retirement - other than the blissful avoidance of Thursday/Friday rush hour traffic.
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Old 04-13-2015, 11:23 PM   #12
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I semi-retired in 2001 at age 38, working 20 hours a week. Because I had been basically been living on one biweekly paycheck for the previous 3 years after I had paid off the mortgage in 1998, it wasn't a big deal to take a 40% pay cut in 2001 to work part-time. All that meant was I wasn't quite living on one biweekly paycheck any more when I still had the mortgage. I was still saving plenty every year.


My company match in the 401k dropped due to fewer dollars going there from my paycheck. Not a big deal, though. My taxable accounts had about $223k in them while my 401k had $179k.


In 2007 (age 44), I went from part-time to "less" part-time. That is, I reduced my weekly hours worked from 20 to 12. I became ineligible for company match dollars so I abandoned any 401k contributions. I needed all my take-home pay to cover my expenses with a little bit left over. I saw this coming so no big deal. My ER plan quickly falling into place so I did not expect to be in this situation for very long. My taxable accounts had about $398k in them while my 401k had $573k, mainly due to the exploding value of the company stock (ESOP). Working PT for 7 years enabled me to remain in the ESOP even if I became ineligible for matching funds or acquire additional shares. The quarterly appreciation of the ESOP was my fastest growing asset and all I had to do to keep it was to remain employed.


Not counting the ESOP, ("free" money), my AA in both accounts was 55/45 in favor of stocks.


In late 2008, when the other pieces of my ER plan had fallen into place, I cashed out the company stock which had reached $300k and fully retired, transferring its proceeds into the taxable account where a bond fund could generate all or nearly all of the monthly dividends to cover my expenses. I have not had to tap into principal since I ERed and the portfolio has only grown.
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Old 04-14-2015, 10:25 AM   #13
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I'm semi-retiring in July at 40% of salary for 15-20 hours/week and will withdraw about 5% of the 401K annually (but 3% of our total portfolio). My DW will continue to work for about 4-5 years. At that point, I'll probably retire completely, then withdraw 5% annually from NW until I begin taking SS, and then reduce the withdrawal rate to 4-4.5% until DW begins taking SS. At that point, the withdrawal rate will be 3.5-4%.
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Old 04-14-2015, 10:45 AM   #14
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I am 58 and I have been semi retired for 7 years. I am fortunate, my 20 hour per week job covers 80% of my average annual cost of living. This has resulted in a withdrawal rate of just over 1/2 percent of my portfolio to get by.

Later this year I am planning to change my situation and get away from the M-F routine of what I have been doing. It appears I will be getting hired as a part-time seasonal tour guide (on a motorcycle) doing 2 to 4 five to fifteen day tours to National parks a year. A real dream gig for me. I am single and like to have things to do and have looked into being an on demand courier/shuttle driver with a local company. Each day I can say yes or no to the work or take off for a month or two to fish, hunt, be a tour guide or go to a warmer place in the winter.

I estimate this change will provide me with much more fun and flexibility but my earned income will only be around 20% of my annual expenses which will up my WR to 2.7%.
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Old 04-14-2015, 11:11 AM   #15
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70% stock market, 15% pure cash, 15% in paid off house we are selling.

0% in bonds.
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Old 04-14-2015, 04:29 PM   #16
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If you're looking for $150-270K to bridge from age 49 to age 62 you need a combination of the following:
- A low spending rate/frugal lifestyle
and/or
- enough income from your part time gig to fund a good portion of your lifestyle
and/or
- a different plan.

You mention that you're married. Does your wife work? Will she also be semi-retiring?

There are tools out there to help model all of this. Quicken Lifetime Planner (comes with Quicken deluxe and higher) is good... albeit deterministic. It has inputs for expected windfalls, income changes (work in retirement section) etc.. Firecalc (see link at bottom of page) can also be useful- you fill in your expected part time income in the "still working" tab. I'm pretty sure Fidelity's Retirement Income Planner also has this kind of flexibility. Play around with some calculators.

Now - as far as what you should invest in... I've of the mindset that you set aside what you know you'll need in the coming year - and invest the rest according to your asset allocation. Most people have a portion of their assets in cash/bonds/fixed income - so cash set aside would be in that fixed income bucket.
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Old 04-14-2015, 06:32 PM   #17
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Quote:
Originally Posted by rodi View Post
If you're looking for $150-270K to bridge from age 49 to age 62 you need a combination of the following:
- A low spending rate/frugal lifestyle
and/or
- enough income from your part time gig to fund a good portion of your lifestyle
and/or
- a different plan.

You mention that you're married. Does your wife work? Will she also be semi-retiring?

There are tools out there to help model all of this. Quicken Lifetime Planner (comes with Quicken deluxe and higher) is good... albeit deterministic. It has inputs for expected windfalls, income changes (work in retirement section) etc.. Firecalc (see link at bottom of page) can also be useful- you fill in your expected part time income in the "still working" tab. I'm pretty sure Fidelity's Retirement Income Planner also has this kind of flexibility. Play around with some calculators.

Now - as far as what you should invest in... I've of the mindset that you set aside what you know you'll need in the coming year - and invest the rest according to your asset allocation. Most people have a portion of their assets in cash/bonds/fixed income - so cash set aside would be in that fixed income bucket.
I'm actually the wife. For the purposes of this exercise, I'm considering my finances separate.

As I said above, and as the thread title suggests, this is about semi-retirement, until reaching 59 1/2. My intent is to shift to part-time. The thread was less about whether it was doable and more just wanting to hear how other *semi*-retired folks handled their money.
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Old 04-14-2015, 07:32 PM   #18
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Googgily,
I did similar to you starting at 47. I went for ultra conservative, because it had, in my mind and situation, a 100% success likelihood.. I had been maybe 80% stocks and wound it down over 4 years to almost 0 stocks. My ER plan would not have worked if markets tanked for a extended time and I did not want to worry. Many pundents say otherwise, but 16 years later I'm happy as can be.
One thing I would suggest to all folks early retiring on a modestly funded(for fat wallet) plan to try to examine their tax rates going forward to SS drawing time and after. I have been pulling out of 401k and IRA and paying taxes to make the most of the low tax brackets I am now in. Some I rolled over to Roths and some not. Some to I-bonds.I missed a few years of very low Fed and State tax rates. Folks with a highly funded plan will be in the higher brackets no matter what. I hope to have some years where I pay little tax on my SS payments. If you don't look at it, you could end of with mandatory IRA withdrawals along with your SS that put you paying as much as 25% of your SS in Fed tax and my state 6%. Folks who don't retire early don't have this opportunity to save on taxes as they are in high tax bracket until retirement and then in retirement still in high tax bracket. The taxation of SS benefits (levels of when it is 0, 50% and 85% taxable) factored into my decision to draw SS at 62. I had always thought I would wait until 70 because I did not need it to live on.That changed when I played with future taxes on my plan. HTH a little.
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Old 04-14-2015, 10:37 PM   #19
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I plan to raise chickens to produce my nest egg.



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Old 04-14-2015, 11:44 PM   #20
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You don't mention ROTH at all, hopefully you are stashing the max into a ROTH that you can.

If you are a couple, how can you plan effectively without considering the spouse assets/spending ?
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