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Semi-Retirement: The Third Alternative

What Does This Article Cover?
  • What is semi-retirement?
  • Why do people choose semi-retirement?
  • How does semi-retirement affect Social Security?

"The best part is the freedom. I don't have to be any place I don't want to be. But I'm still active and involved, and the extra money helps." — Cal Traver, semi-retired

Like millions of seniors today, Traver has chosen the third alternative of semi-retirement — a cross between full-time employment and full retirement. A former police officer, Traver is now in sales. Others may be two-day-a-week consultants; department store greeters; substitute teachers almost anything.

They work for several reasons:

  • They want to stay involved, especially if they are in good health. If you retire in your 60s, your retirement could span three decades or more. Between 30,000 and 50,000 people have already crossed the hundred-year mark. By 2050, America is expected to have more than 800,000 centenarians. "I work to keep active mentally and physically," says Traver, who retired after 28 years on the force. "Working part-time offers social and psychological benefits." ("Thousands of Americans now live to be 100," New York Times, 6/22/98.)
  • They want the money either to make ends meet or to pay for extras such as travel for themselves or gifts for grandchildren. Most of all, for many people, part-time work takes the pressure off a too-small nest egg. Let's say you retire at age 65 and work part-time for the next 10 years, earning $20,000 a year. That puts an extra $200,000 (before taxes, of course) into your retirement equation.

How can you make semi-retirement work for you, whether you are several decades away from retirement or already reserving a mid-week tee time on the golf course?

Do not view semi-retirement as a substitute for retirement savings. You never know how long you will be able to work or want to work. Make semi-retirement an option, not a must-work necessity. So, keep stockpiling money for your future while you work full-time. Specifically, you may want to consider:

  • If your employer provides profit-sharing, try to make maximum contributions up to the day you retire.
  • Put money into other qualified plans, especially IRAs. That can be as much as $4,000 a year ($2,000 if you are single) and can add up. Growth is tax-deferred and, with a Roth IRA (funded with after-tax dollars), so are all distributions, provided certain conditions are met.
  • Use annuities. These are long-term saving vehicles and withdrawal restrictions may apply. The money grows tax-deferred, with no upper limits on contribution amounts. You can shovel as much money as you can spare into your annuity.

Research your work options. Many companies use retiring employees as independent contractors. Or you may want to check out something totally new. Find a position that you enjoy and that gives you the freedom to set your own hours, with enough time off to enjoy your retirement.

Caution: Research your options with Social Security. While you can begin taking Social Security as early as age 62, the longer you delay, the greater your benefits will be.

Plus, earnings from employment or self-employment can affect your benefits. For example, if you are under age 65 and receiving Social Security benefits, any amount you earn above $10,080 (year 2000) will begin reducing your Social Security checks by $1 for every $2 you earn. From age 65 through 69, you can earn $17,000 before you begin losing benefits; and benefits are reduced $1 for every $3 earned. After age 70, there is no earnings limitation.

Should you defer Social Security benefits up to age 70? Factors include your own health, the age of your spouse, tax considerations, and more. No simple answer is applicable to everyone. Each person has to evaluate his or her own situation.

Semi-retirement is an increasingly attractive option for many Americans.

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Semi-Retirement: The Third Alternative

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