As retirement draws near, a lot of people are reconsidering what it means to "retire." Retirement has historically meant leaving the working entirely, but for many people, that paradigm is becoming less desirable and even unneeded. As a means of gradually transitioning into retirement while retaining a certain level of professional involvement, the idea of semi-retirement has really gained popularity. Semi-retirement is providing a flexible and satisfying substitute for full-time employment, regardless of whether one is motivated by a desire to stay active or by financial necessity.
Semi-Retirement: What Is It?
A stage of life known as semi-retirement occurs when people cut back on their working hours while still taking advantage of freelancing or part-time employment options. This may entail reducing the number of hours worked at a full-time job, switching to a part-time one, or even going after self-employment through consulting, freelancing, or starting an internet business.
Some people need to be in semi-retirement. Even after they've reached the typical retirement age, people can still need to work due to a lack of savings or unforeseen financial difficulties. Others are motivated to continue working because they find fulfillment in their employment, a sense of purpose, or a social connection. By providing a balance between leisure and action, many people discover that continuing to work on their own terms can improve their well-being.
Important Takeaways:
People who are semi-retired can work part-time after retirement, giving them a flexible method to keep making money while having more free time.
Semi-retirement has psychological benefits as well as financial ones, assisting people in maintaining relationships and engagement.
Understanding how semi-retirement may impact taxes, Social Security benefits, and health insurance coverage is crucial before accepting it.
The Economic Advantages of Semi-Retirement
The ability to augment retirement funds is among the most direct advantages of semi-retirement. Even though part-time job may not provide as much money as full-time employment, it can nevertheless make a significant contribution to one's financial future.
For example, those who work part-time might be able to make contributions to retirement funds such as Individual Retirement funds (IRAs). Catch-up contributions are available to those 50 and older, increasing their retirement savings potential. This age group's maximum 2025 IRA contribution is $8,000, which includes a $1,000 catch-up contribution. Higher contribution limits are also available to older workers who have access to 401(k)s; in 2025, a $7,500 catch-up contribution will be available, increasing the maximum contribution limit for individuals 50 years of age or over to $30,000. Up to $35,500 can be contributed by those between the ages of 60 and 63.
Additionally, you may be able to postpone obtaining Social Security benefits by continuing to work part-time, which could result in a much higher monthly income when you do decide to start receiving it. Those who wish to optimize their retirement income and anticipate living longer would especially benefit from this. A person can potentially increase their Social Security payout by roughly 8% for each year they wait until after their full retirement age (FRA), for instance.
Semi-retirement can provide as a significant buffer against unanticipated financial losses, such as market downturns or personal exigencies, even if financial incentives aren't the only driving force. People can create a buffer for such difficulties by having a second source of income and being able to postpone taking money out of their retirement accounts.
Being Semi-Retired Could Help You Feel Better
Although the financial benefits are alluring, semi-retirement also has psychological advantages that are sometimes disregarded. It can be startling to go from a bustling profession to full-time retirement, particularly for people who have worked for decades. Losing a job-related identity and becoming socially isolated can have a detrimental effect on mental health and increase the risk of developing loneliness, anxiety, or depression. By offering structure and frequent contact with coworkers or clients, semi-retirement can reduce these dangers while maintaining social networks and creating a feeling of purpose.
According to Carolyn McClanahan, CFP and founder of Life Planning Partners, she advises her customers to consider their retirement plans. "Before people retire, like within five years of retirement, we start having conversations about what they’ll be doing in retirement," she explains. "For some of my clients, reducing their work hours instead of quitting altogether makes them more likely to have a successful retirement." It is impossible to overestimate the psychological benefits of continuing to work part-time for many retirees. While having more free time, it enables them to remain involved, intellectually challenged, and linked to their professional community.
But not everyone is suited for semi-retirement. Teresa Ghilarducci, a labor economist, notes that working longer hours may not always be beneficial, especially for those in low-control or high-stress positions. "Work can be good for people in jobs with status and autonomy, like professors or politicians," Ghilarducci says. "But for those without such control, work can lead to increased stress and health problems." People should assess their workplace and whether working part-time will improve their quality of life or cause them unnecessary stress.
How to Determine If You're a Good Fit for Semi-Retirement
People must evaluate their own circumstances and motivations in order to decide if semi-retirement is the best option. It is crucial to assess the difference in savings and the amount of time one will need to work if financial restrictions force one into semi-retirement. The decision might be made clearer by posing queries such as "How much more do I need to save?" or "How long will I need to work to cover my retirement expenses?"
Semi-retirement may provide the opportunity to work on a more flexible schedule and earn additional income for people who have enough saved but still wish to increase their nest egg. This additional revenue might offer an additional degree of financial stability or act as a buffer against economic downturns.
However, people might approach this stage of life with greater flexibility if they choose semi-retirement for personal reasons, such as the desire to keep a feeling of purpose or to continue working on a worthwhile project. For instance, individuals might take up a part-time position, cut back on their workload, or follow a personal interest like consulting or freelancing writing. With this strategy, people can mold their semi-retirement to best suit their interests and values.
Things to Take Into Account When Thinking About Semi-Retirement
People should carefully weigh a number of considerations before deciding to enter semi-retirement, such as the possible effects on their healthcare coverage, Social Security benefits, and tax position.
Brackets for taxes:
How part-time employment may impact income tax bands is one important factor to take into account. People should be aware of their tax bracket if they continue to take withdrawals from their retirement funds while earning extra money. They might end up in a higher tax rate as a result of the additional income, which would raise their tax liability.
Social Security
If a person is under full retirement age (FRA), working part-time while receiving Social Security benefits may result in a lower monthly income. Under FRA, people who make more than $23,400 in 2025 may see a $1 reduction in their Social Security benefits for every $2 they make over the cap. However, the benefit will be recalculated and any previously withheld benefits will be reinstated after the individual achieves FRA.
Medical care:
Another important consideration is healthcare. Retirees under 65 must buy health insurance through the marketplace until they are eligible for Medicare at age 65, while those who stay in their jobs may continue to rely on employer-sponsored insurance. Anticipating healthcare costs during the transition to retirement is crucial because Medicare premiums for those with higher earnings may be influenced by income from the prior year.
The Bottom Line
An alternative to the typical retirement model, semi-retirement gives people a flexible way to transition into retirement while preserving their social networks and financial stability. It has obvious financial advantages, such as the option to postpone Social Security benefits and keep making contributions to retirement funds, but it also has psychological benefits by keeping people involved and connected. To make sure that semi-retirement fits with their long-term objectives, people should carefully consider their financial needs, tax consequences, Social Security impact, and healthcare coverage before starting down this route.
People can continue to make significant contributions and lead more balanced and satisfying lives in their later years by intelligently approaching semi-retirement.
According to a new National Bureau of Economic Research (2024) research, almost 30% of Americans 60 and older are thinking about entering or have already done so. This expanding trend demonstrates the financial stability and personal fulfillment that many people have when they cut back on work hours while continuing to work part-time or as consultants. Delaying full Social Security claims and continuing access to healthcare through employer-sponsored plans are two ways that people might better manage their retirement assets as they move toward semi-retirement. This kind of flexibility can provide both financial stability and the chance to maintain social and intellectual engagement.
Semi-retirement might be compared as a slow shift from a full marathon to a leisurely jog. You decide to slow down and keep going instead of stopping suddenly at the finish line, giving yourself more freedom and flexibility. This enables you to maintain the motion without exerting yourself too much, take in the landscape, and catch your breath. Semi-retirement helps you maintain financial stability, keep socially active, and balance the advantages of employment and leisure, much like jogging allows you to stay active without the intensity of a race.