This article was first published in 2016.
For many years I was all about early retirement. I remember telling anyone who would listen that I’d be retired by 30 back when I purchased my first investment property at the age of 24.
I was cocky in a way that only a 24-year-old with a high corporate salary could be. No kids, just money to burn. Or buy houses with.
The thing is, I turned 24 in 2006. And we all know what happened to most real estate markets in the years following 2006.
Bright young things were blown off their perches, and their dreams of early retirement through property riches transformed into visions of endless cubicle life.
It wasn’t until I discovered personal finance blogs that I understood early retirement was possible without a multi-million dollar property portfolio.
I was (and continue to be) inspired by bloggers pursuing early retirement via frugal living and high savings rates (some as high as 65%.) Some had already left their jobs. Some are very close.
Most had a date on which they could hand in their notice and become official early retirees. Every single one of them inspired me to be better. To try harder.
After I had my babies, I realised that I didn’t actually want early retirement.
Well, technically, that’s a lie. If I won the lotto, I probably wouldn’t continue to work for money.
But for me, to get to the early retirement stage would mean putting my boys in full-time daycare and going back to the corporate world in order to save 25x our annual expenses.
And not travelling for ten years. No, thank you.
I’ve spent this past year trying to figure out exactly what I want, or more precisely, what will work for my family, and I think I’ve come up with a workable alternative.
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Meet Early Semi-Retirement, Early Retirement’s Nerdy Younger Sister
For some of us, early retirement just isn’t possible.
For whatever reason – digging ourselves out of the sinkhole of consumer debt, having babies or returning to studies later in life mean we haven’t emerged from our twenties with huge pots of cash.
That’s not to say we’ve failed; after all, you wouldn’t be reading this blog if you didn’t have an interest in money.
You might be like me, with a few investment properties under your belt and a rock-solid idea of how to get where you’re going.
You’re just not there yet.
I want you to know there is an alternative. A not-often discussed alternative. Semi-retirement.
Defined by the Oxford English Dictionary as “having retired or withdrawn from employment or an occupation but continuing to work part-time or occasionally”.
Early Semi-Retirement
Sounds pretty rad, right? What if we just did that earlier than usual?
Perhaps in our thirties. I think that’d be called Early Semi-Retirement – and here’s my definition of that:
Early Semi-Retirement: It’s when you only need to work part-time, as you are able to cover your expenses on a drastically reduced income. It’s usually because you made awesome choices to save half or more of your DINK income when you were younger because you knew you’d never pull that kind of coin when you had babies. Not because they are expensive. They aren’t. But not being able to work your high-paying corporate gig is one hell of an opportunity cost. Then you chose to invest (you legend!), but your investments aren’t yet at the stage where they could support you. That’s cool, though, because now you are in an oddly comfortable spot of needing just a little cash in order to live your dream life.
Since deciding that early retirement was not the right choice for us we’ve veered towards semi-retirement with a vengeance.
We still don’t want (or need) to work full-time to have the life of our dreams, but we can’t quite afford to chuck it all in.(I’ll share my numbers later in the post).
We’ve worked really hard to get to this point – by following all of the points below.
How to Semi-Retire Early
Clear debt
I cannot stress this enough. Any debt that makes you poorer must go. High-interest-bearing debt is anathema to lifestyle options.
Car payments, credit cards, hire-purchase and (shudder) payday loans are emergencies.
You must prioritise them over everything else.
Save a little cash in case of emergency and then knuckle down to clear those horrible debts.
For me, becoming free of bad debt was the catalyst to a more prosperous life.
Find an affordable place to live.
I’m not saying you should buy a house, but if that’s right for you, go for it.
What’s important is that the place you choose to live in is affordable.
When we were living in a big city and earning big incomes, we lived in a rented apartment, shared with another couple.
The rent was approximately 10% of our combined income.
Keeping your housing cost low frees up a lot of cash for building wealth while you are young so that you can semi-retire (early) in your thirties.
If you are buying, pay no heed to what the bank will loan you, they have zero interest in you paying back your mortgage early and saving hundreds of thousands in interest.
Check out what the median price is in your area, and aim to buy well below that.
Then get in roommates to help you nail that mortgage.
If you are renting, make sure you invest the extra cash you save by not being a homeowner.
Slash your expenses and become accustomed to a frugal life
Work out your core expenses and budget around those – not the other way round.
Allow yourself only that fixed amount each month and save or invest the rest.
Our monthly budgeted expenses closely correlate with a minimum wage income – so basically, we pretend we are poor.
It does wonders for keeping expenses low.
You should spend time learning how to be frugal (it doesn’t come naturally to a lot of people – me included) and pursuing interests that are either cost-neutral or net you some food (gardening, foraging) or, even better, cash!
Multiple income streams
The secret to being able to choose whether you want to take some time off to travel or take a part-time job whilst working on a passion project is to have multiple income streams.
You could earn a small amount from a rental property, interest on a term deposit, dividend income, have a regular weekend gig, create an online side hustle, or even start a small business from home.
When combined, all your small streams of income help to replace the funds lost from your full-time job.
Because you’ve chosen to bow out of the rat race you need to be prepared for the questions, judgements and opinions of others.
People will assume you are on the dole (social assistance) or bludging off somebody else.
Especially if, like us, you choose to live in a lower-socioeconomic area with cheap real estate.
And you drive a banger from 1992 with broken electric windows.
Why & How We Plan to Semi-Retire in Our 30s
I’m from New Zealand (where we live), and my husband is from Ireland, AKA the exact opposite side of the planet.
We have 2 boys and want them to foster close relationships and build great memories with both sides of the family.
Flying to Europe from New Zealand costs a lot of money.
For our family of four, it will range between $6000 and $8000 or, to put that into perspective, the equivalent of 12-16 weeks of full-time work at the minimum wage – and that’s just for flights.
For that reason, we don’t like to go for short periods of time. We prefer three months at a minimum.
I came up with the idea of chasing the summer around the world, meaning we’d live and work in New Zealand for nine months of the year and hustle hard to get enough money together to spend the northern hemisphere summer in Europe.
We’ve done everything we can to reduce expenses by downsizing our house and living on a tight, fixed budget.
The reason I define our lifestyle change as semi-retirement is that my husband will still have to work a regular job (albeit a seasonal or contract role) for eight months of the year.
I still have to bring in new business and continue to work while we travel.
But for four glorious months of every year, my husband and I will both be stay-at-home parents and able to pursue our greatest passion: travelling!
And now, the numbers
To achieve this dream lifestyle, we need an absolute minimum of $42,000 per year, after tax, cleared income.
Here’s how it breaks down.
Month by month:
Months 1-9, we will be based in New Zealand, and therefore our expenses will remain static at approximately $2200 per month.
We’ll be trying to get that down as low as possible, but I’d rather assume higher so I’m going with $2500.
Monthly – 1-9: $2500 | 9 * $2500 = $22500
Months 10-12, we will be either out of the country or, if the budget is tight, we’ll be travelling around New Zealand (not the most terrible alternative :-)).
Although we won’t be staying in our house, we will need to maintain the mortgage and utilities.
Eventually, we would like to rent our house out on Airbnb (referral link) when we travel, which will help offset a portion of our travel costs.
Our monthly expenses in months 10-12 are $6500 consisting of travel ($5000) and essential costs of maintaining our home ($1500).
Monthly – 10-12: $6500 | 3 * $6500 = $19500
Total= $22,500 + $19,500 = $42,000
How we plan to make that money
Wages
I’m counting on a worst-case scenario here.
That’s a minimum-wage job for my husband (which is very unlikely as his skills are pretty much always in demand but planning for the worst makes me feel better).
If he takes a seasonal or temporary job and earns the minimum wage for 8 months, that is $20453 before tax or $16616 after taxes.
Business income
I have to make up the difference of $25,384 in my business.
That is a pre-tax income of approximately $33,500 per year (remember, I can run my business from anywhere, so I will be working during our travel months).
I am confident that I can earn at least that much and still have a great life with loads of free time.
House rental
Eventually, we will be able to rent our main house while we are travelling, which would help offset the high expenses we would have for the three months of the year we travel.
Investments
We spent our twenties investing in real estate. We made some pretty horrid mistakes but we also did some things right.
Currently, our rental property portfolio is self-sustaining.
Meaning the combined rents cover the combined expenses. Right now, there is nothing left over for us to draw as income, but eventually, there will be.
As for shares, we are in the accumulation phase, so again, there are no income streams right now.
How will this plan affect our traditional retirement plans?
This lifestyle only works if we can pay for current expenses and save for the future.
If we can’t do both of those things, we’ll have to cut our travel fund. Period.
Our properties are slowly being paid down, and I expect values on all but one of them to rise.
We will still contribute to traditional retirement funds and include a monthly contribution to index funds in our budget.
We don’t have to worry too much about the future as it’s taking care of itself.
Lesson: Lay a solid foundation when you’re young, and time + inflation + compound interest will do most of the hard work for you.
For us, semi-retirement makes sense.
We could chase big salaries and shoot for a decade of extreme savings to hit early retirement, but we’ve decided that while our boys are young, we can take a little sacrifice.
When the youngest is school-age, we’ll likely re-evaluate.
But for now, a combination of work and extended leave allows us to pursue our travel goals whilst still retaining some semblance of a solid home environment for our boys.
Having the luxury to choose this lifestyle is proof that the road to financial independence needn’t be absolute. Just figure out what works for you and go with that.
Related: We Just Semi-Retired (These Are Our Actual Numbers)
