Semi-Retirement

It’s been three years since I last wrote for this website: See the post, Why Financial Independence is a better goal than Retirement. The editors have asked me to update that piece in light of the fact that I recently published (with co-author Mike Drak) a book that goes into some depth about the themes mentioned in that post and in particular Semi-Retirement.

The Baby boomers (of which I’m one at age 63) have impacted every market they’ve touched as they grew up, from housing to the job market to stocks. But we believe that the next big boomer wave will NOT be traditional full-stop retirement but rather Semi-Retirement.

Whether it’s because they saved too little or will live longer than they expected, most aging baby boomers will need to keep working at least part-time in what used to be termed the retirement years. Chief among these trends is extended longevity. Indeed, the children of the Boomers – the Millennials – should expect to live close to 100, which means they will have an investment time horizon of 80 years. Clearly, they should be mostly if not 100% in stocks. See the book, The 100-Year Life.

But the Boomers themselves need to factor in longer life expectancy: we argue that when doing financial plans, they should add at least 10 years to their expected lifespans. Clearly, this will have serious financial consequences for retirement planning, at least the traditional “full-stop” retirement that we argue should itself be retired.

Add in the continuing decline of employer-sponsored Defined Benefit pension plans, and the paltry interest rates that fixed-income investments have paid since the financial crisis, and it all adds up to continuing to generate at least some part-time income in what used to be called the golden years. For us, the longer you delay the receipt of government retirement programs like Social Security, the better (or in Canada, the equivalent CPP/OAS).

We believe the financial industry has oversold the concept of full-stop retirement. The advertisements depict what appears to be a permanent vacation but as anyone who has suffered Sudden Retirement Syndrome (typically in a corporate downsizing towards the end of a career), doing absolutely nothing after three or four decades of structure, meaning and purpose can be depressing and deadly.

Rather than leaving the workforce cold turkey, we envisage a new stage of life between the salaried corporate career and the traditional “full-stop” retirement that used to occur around age 65. Some call this new stage of Semi-Retirement an encore career or a legacy career; our term for it is the Victory Lap, or Victory Lap Retirement.

Apart from the financial motivation, we also believe semi-retirement provides the kind of structure, social interaction and sense of purpose that the traditional work environment provided. We all need purpose and meaning and a reason to get up in the morning. Earning a little extra money for fun activities like travel and supporting the arts we call “earning a playcheck.”

For many, this means turning an avocation into vocation, or returning to school to retrain and start a brand new career. Friends of ours have moved from the financial industry into acting, or a corporate chemist into music, and a rock star who became a minister. As more Boomers enter Semi-retirement there will be many variations on this theme.

But the key to successful semi-retirement is the topic we looked at the first time around on this site: that of Financial Independence. The concepts of Financial Independence and Victory Lap are intertwined. To put it in terms of Eastern religion, Findependence is the Yin to the Victory Lap’s Yang.

Seen thus, Findependence is everything you need to do to achieve Financial Independence or financial freedom; the Victory Lap is enjoying the fruits of that Financial Independence.

The day you achieve financial independence we call your Findependence Day. We define that as “the point where your basic (non-discretionary) living expenses are covered by your passive (non-work) income.” It’s the amount of annual cash flow you need to keep a roof over your head, food on the table and to pay for such recurring necessary expenses as heating, electricity, property tax and the like.

Once you have Financial Independence, you no longer need to work to survive, although you may well choose to continue working because you want to, rather than need to (financially speaking).

To us, semi-retirement is a way to combine work and play. As we say, “Work while you play, play while you work.” We also talk about the “Joy of Financial Independence.” That’s the exhilaration of being your own boss and in charge of your own destiny, of finally being able to pursue creative or philanthropic goals that you may have had to suppress during your child-rearing years. It’s about pursuing your innermost dreams and goals and believing that the best years are still to come.