9 tips to set yourself up for semi-retirement

• Semi-retirement has become increasingly common as more people slowly transition to life after work.
• People may pursue their passion, work part-time, or consult instead of stopping work altogether.

Under the traditional idea of retirement, you work for decades, all the while saving up enough money to ultimately cut the career cord and live a life free from work. The dream is to be able to visit family, travel, volunteer, maybe pursue a favorite hobby. Full retirement was the ultimate goal, representing freedom and stress-free living.

There was a clear separation between working and retiring. You either did one or the other. That was then. Nowadays, more people nearing or at retirement age are choosing a lifestyle known as semi-retirement, which combines the two.

What is semi-retirement?

When a person works full time and decides, instead of fully retiring, to work part-time, become a consultant, or work at a more fun or meaningful, they are considered semi-retired. Rather than diving into retirement, they're wading in slowly.

A person might choose semi-retirement for a variety of reasons.

Justin Stevens, a CFP® professional with O'Keefe Stevens Advisory, points out that financial necessity is often behind the decision. With increased wealth, education, and advancements in medicine leading to longer lives, "retirement today might be a four-decade endeavor," he says.

"Coupled with a steadily rising cost of living, there is a higher probability today of running out of money later in life," Stevens says. "Some people prefer to work longer and delay spending their hard-earned savings, delay taking Social Security, and let their money continue to compound."

Jordan Grumet, author of "Taking Stock: A Hospice Doctor's Advice on Financial Independence, Building Wealth, and Living a Regret-Free Life," notes that just a small amount of income during semi-retirement can make a big difference.

"Even funding 25% of yearly spending with outside sources can make a previously shakey retirement portfolio rock solid," Grumet says. "Furthermore, employer-sponsored healthcare and access to retirement savings vehicles like 401(k)s with an employer match make semi-retirement an even a wiser choice."

Others choose semi-retirement simply to remain active. The thought of retirement may strike them as boring. They want a reason to get up in the morning and like a routine.

Some retirement-aged people leave their regular jobs and take positions that give back or make a difference, even if the pay is a fraction of what they made at their full-time jobs. Still others choose to continue working after retirement to remain engaged with the community. This group might decide to find a job just to be around people, whether they need the money or not.

Types of work for the semi-retired

There are many options available for semi-retired folks to stay employed in some capacity. They may decide to stay at their current company part-time or decide to consult in their specialty. They might switch gears altogether and try something new that aligns with their hobbies and passions. Or they may take a job with less stress — at a library or grocery store, for example — to pass the time and make some extra money.

Many employers who once only hired full-time positions are seeing the benefit of keeping retirement-age employees around longer. These employees are loyal, have good work ethics, and offer decades of knowledge and experience. Part-time work and flexible positions are expected to become more common in the next decade.

And there are likely to be many retirees willing to take them. A 2022 survey commissioned by the Employee Benefit Research Institute found that 70% of workers think they'll work for pay in retirement. It also showed that only 27% of current retirees are doing so.

The outlook for work after retirement is changing, says Alan Kirby, a chartered financial consultant with Ridge Brooke Tax and Retirement Planning in Tennessee. There are more options than ever for retirement-age people who want to continue working, either in a scaled-down version of their current role or in a totally different job.

"Semi-retirement of today has evolved way beyond the idea of leaving a good job to go be a greeter at Walmart," Kirby says.

9 tips to set yourself up for semi-retirement

If you've researched semi-retirement and think it sounds like a good option for you, start preparing for the change now. Just like full retirement, the sooner you take action the easier the transition will be. These nine tips will help pave the way to a smooth transition into semi-retirement and beyond.

1. Make a realistic plan

You can't effectively move to the next stage of your life until you know where you are now.

"One of the most important aspects of semi-retiring is ensuring that you have enough saved up to cover your costs," says Linda Chavez, founder and CEO of Seniors Life Insurance Finder. "Take some time to assess your current financial situation and set goals for how much money you will need to support yourself during semi-retirement."

Look at your current spending and debts compared to the retirement assets you'll be tapping. Measuring both gives you an idea of how much income you'll need in semi-retirement.

2. Pay off your home

Your home is most likely one of your most valuable assets, and your mortgage may be your single biggest monthly bill. Taking it out of your budget decreases your expenses significantly. Plus, you have the stability of housing taken care of already.

3. Simplify your life and belongings

Getting ready to semi-retire is the perfect time for cutting out extraneous expenses and pricey possessions that don't add value to your life. Focus on what matters most to you and eliminate the rest.

"Before pursuing the semi-retirement lifestyle, you should ask yourself why you want to semi-retire," says Greg Middendorf, a CFP® professional at HCM Wealth Advisors. "Having clarity around your reasoning will help you achieve these goals. For a successful outcome, give priority to the things important to you."

4. Focus on getting out of debt

High debt loads and big monthly payments can strain your budget, especially if you're making less than you did when working full time. Decreasing your debt as much as possible helps semi-retirement go more smoothly.

"When you decide to live a semi-retired life, it's important that you concentrate on repaying any existing debt you may have," says Middendorf. "Long-standing debt can seriously hamper your financial stability and your dream of semi-retirement."

5. Find ways to earn passive income

The money you've saved so far is vital, as is the money you'll be able to make in semi-retirement. Consult your financial advisor before you take the plunge to ensure you aren't sabotaging yourself down the road.

Find investments that create a passive income stream. Dividend-paying stocks, certificates of deposit (CDs), annuities, and bonds are among the options. Rental property is another way. Some people create YouTube channels or websites that they can use to generate income. Fall back on your talents to build income helps fund your semi-retired lifestyle.

6. Figure out how to make money from your passion

Semi-retirement can come sooner if you convert your passion into a money-making stream. Always loved woodworking, gardening, photography, sewing, or drawing? Figure out a way to use those interests to generate income. That way, you get to do what you love and make money.

7. Get your health insurance plans sorted

One of the most substantial expenses people who semi-retire fail to plan for is their health insurance costs. Many full-time jobs foot the bill for most or all of their employees' health insurance premiums. Those will be your responsibility when you leave your position.

"Health insurance before Medicare begins is expensive!" says Patti Black, a CFP® professional at Bridgeworth LLC. "Continuing on group health insurance or working part-time may help offset that cost, which can help boost your chances of a financially successful retirement."

According to JustCare USA, a digital platform that provides data and information to help baby boomers navigate health-care choices, women who are 65 should have $159,000 set aside for health-care costs. Men who are 65, because they have slightly shorter lifespans, should have $142,000 set aside.

8. Look for deals to stretch your dollars

In addition to cutting your expenses, take advantage of programs that offer discounts to semi-retired folks.

Katie Ross, executive vice president at American Consumer Credit Counseling, recommends looking to national and local organizations for discounts on everyday expenses.

"Organizations like AARP or the Association of Mature American Citizens can help you save money," Ross says. "Your local senior center and town offices might also be of help. Some towns offer seniors abatements on things like real estate taxes and water and sewer bills if you qualify."

9. Keep your options open

Moving into semi-retirement doesn't mean you'll never be in the full-time workforce again. In most cases, the move is a step toward full retirement, but not always.

"If you have any kind of professional credential, license, certification, or security clearance, it's highly recommended that you find a way to maintain them," says Brad Nelson, a CFP® professional at Lyon Park Advisors, LLC. "You worked hard for them and they're nearly always much easier to maintain than to regain if you let them drop. The purpose, of course, is to keep your options open if you find that retirement is not for you."