How a Part-Time Job Can Save Your Retirement

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As you well know from this site, we love case studies! We believe retirement or semi-retirement drawdown case studies can help people see themselves in such examples – offering investors guidance, time for reflection, and new opportunities to explore. This case study today is about how a part-time job can save your retirement. We believe such a post is very timely since we know many readers who are considering that very path.

Read on in today’s post: how a part-time job can help save your retirement plan.

Retirement needs are and have been…changing

Retirement: the action or fact of leaving one’s job and ceasing to work. Or, maybe retirement for you means the withdrawal from one’s position or occupation or from one’s active working life.

Retirement needs are and have been changing for some time with other breaks in traditional societal norms. No longer is the treadmill of going to school, building a career, and then retiring after 30 years common – which is a good thing. Instead, some people might graduate, work, take a sabbatical, go back to school again, travel, and try something new again even in mid-life to change a career yet again.

Further, something we support: as some people age they have no desire to retire; they still feel healthy and productive, they may not want to give up any sense of community they have built and hopefully their jobs don’t have any extreme physical demands that make continuing to work indefinitely impossible. Unfortunately for others, some people may need to retire when they are older or incapable of doing their job due to health reasons. We hope that is not the case for you. In fact, we want you to consider semi-retirement or work on your own terms – for many reasons.

It can be (and should be) all about balance

You might already have an idea about what your “enough” number is. That’s great. A reminder any retirement estimates should be personal – like a fingerprint – but also subject to change. The world is a complex place – you need to adapt.

That makes no two retirement plans the same even though some common themes and risk mitigation tactics should apply to everyone:

  1. Mitigate poor sequence of returns risks in the first 5, ideally up to 10 years, in retirement.
  2. Have a plan to help fight inflation throughout retirement.
  3. Have a plan to combat financial emergencies and avoid depleting your capital for them.
  4. Have a plan to fight longevity risk.
  5. Where possible, be tax efficient.

Our point is that your retirement or semi-retirement plan and any financial independence number are personal and unique. Some people retire in expensive cities, with an expensive lifestyle, so they might require much more money than others. Regardless of where you live, some people simply can and choose to live on much less.

We believe some aspiring retirees (5-10 years out) should think long and hard about retirement. We say this because we’re going through this thinking right now. We happen to be big believers in working at something you’re passionate about for as long as you can. The reasons why this can be beneficial are many:

  • Part-time or occasional work gives people purpose in life – a reason to be productive and a contributing member to something or someone.
  • Some forms of semi-retirement can be a mental and emotional stimulator: they can keep you happy and healthy. There is evidence that work, when balanced and aligned to your values, actually makes you happy!
  • Working, even for modest or occasional income, can alleviate financial stressors ensuring full retirement does not jeopardize everything from your portfolio or pension should any unforeseen market calamity occur.

Mounting studies, research and anecdotal information suggest balance is a key to giving us a sense of purpose, it can keep us healthy, and happier and increase our life expectancy.

You can check out Andrew Hallam’s fine book Balance for that very information.

Consider work on your own terms

My Own Advisor has written about his plans to avoid FIRE (financial independence, retire early) and instead focus on celebrating FIWOOT (Financial Independence, Work On Own Terms). This FIWOOT path implies we should celebrate different ways of working, living, and spending time in our 40s, 50s and 60s (or beyond) that makes the one-size-fits-all traditional retirement plan extinct.

Working, saving, investing whereby money is saved up to be spent only in the latter years of life, seems neither feasible nor practical nor fun these days. This makes any plan to have a part-time job to save or support any semi-retirement objectives far more ideal.

How a Part-Time Job Can Save your Retirement – A Case Study

Whether you’re in your 30s or 60s or anywhere in between, you might be considering your version of FIWOOT and if so, we’re here to help in today’s case study.

Our case study participant today, Amy, is a single, female who lives in Ontario, Canada.

Amy has modest spending needs for any semi-retirement but more importantly, she is seeking that aforementioned balance. Amy would much rather pursue her passion projects, in the coming years, part-time than work 50+ hours a week and have little control over her time.

“Controlling your time is the highest dividend money pays.” – The Psychology of Money

Indeed.

Amy has no desire to work as hard as she can to buy things she doesn’t need.

She believes controlling her time, friendships, health and balance is true wealth.

She wants to know if spending $45,000 per year, starting semi-retirement at age 55 this year, is doable, considering she will make about $20,000 per year in part-time income on average.

Case study inputs – assumptions

Before we get into the results of this case study, how Amy might fulfill her dreams, let’s look at the important assumptions used in this scenario:

  • Amy has an annual spending goal of $45,000 after-tax per year, on average (and increasing with inflation).
  • She wants to semi-retire this year at age 55.
  • Amy owns a small two-bedroom home and has no debt – always smart to enter semi-retirement without debt!
  • Inflation is running higher, so we’ll assume 3% inflation going forward.
  • Amy will earn a part-time annual income of about $20,000 per year from this year (age 55) until about age 65 when she considers taking Old Age Security (OAS) benefits, and stopping paid work completely.
  • Amy has read our site about OAS and the OAS clawback so she’ll take these benefits at age 65 but defer Canada Pension Plan (CPP) until age 70 (assume average CPP).
  • She is quite savvy on the benefits of deferring CPP, so for now, age 70 it is for that vs. age 65. For you: when is the best time to take CPP?

Up until this point, Amy has been good with money investing in low-cost, diversified ETFs for wealth-building so she’s managed to amass a modest portfolio on her own terms – well done Amy!

  • Amy’s RRSP market value = $500k (at 55 now).
  • Her TFSA balance is = $125k.
  • She left a smaller company in her late-20s and since then, her LIRA from that former employer has grown to be worth almost $100k. She will eventually decide to LIF that account at age 55 and start her life income fund stream to help supplement her part-time income.
  • Amy keeps about $30,000 in cash savings for emergencies and knows the value of a cash wedge to ride out market volatility to buy some equities when they go on sale!
  • Lastly, we’ll be conservative with long-term investing returns assuming she’ll earn about 6% in retirement on average for the coming 45 years to age 95.

How a part-time job can save your retirement results

What can we say, kudos to Amy. The part-time job will absolutely help her live out her FIWOOT plans!

First, however, let’s take a look at the scenario of what retirement income would look like without part-time work. Is $45k after-tax spending still feasible?

Using our projection tools (that many readers have benefited from!), the cash flow table below shows that without part-time income, Amy will run into a deficit starting at age 77. In this case, the max-spend during retirement is calculated to be $39k/year after-tax (providing the assumptions above are met).

cashflow table no part-time income

So now onto the good stuff.

Will earning $20k/year for 10 years really make much of a financial impact?

It certainly will!

The additional income will take significant pressure off her investment portfolio – and allow it to grow. In this scenario of working part-time for 10 years, this is what Amy’s new cashflow would look like:

cashflow table part-time incomeMaintaining spending of $45k after-tax (increasing with inflation) would result in the following estate over time:

networth table part-time income

You might be asking – what about the most she can spend in retirement?

About $45.4k/year after-tax with sustained 3% inflation. That’s very good!

How a part-time job can save your retirement summary

In The Psychology of Money, author Morgan Housel highlighted this reminder for us all:

The biggest single point of failture with money is a sole reliance on a paycheck to fund short-term spending needs, with no savings to create a gap between what you think your expenses are and what they might be in the future.” – The Psychology of Money.

In Amy’s semi-retirement plan, she is relying not solely on a paycheck but rather on a combination of some modest part-time work AND her personal portfolio to help her enjoy a fulfilled semi-retirement dream.

With Amy’s plan, to work part-time and control her time in semi-retirement, Amy has devised a plan to avoid reliance on just her portfolio for retirement, provided purpose in her life, and created some financial buffers for the coming decades to combat inflation, sequence of returns risks, and more. She may even choose to keep working or just scale back further as she ages.

Working part-time can help save your retirement plan and provide other benefits. It’s an option we strongly suggest you consider.

Need help with understanding your cashflow or your retirement income options?

We can help!

We answer client questions like:

  • What registered accounts do I draw down first?
  • How much income will my investments generate?
  • Do I have any idea how long this income might last?
  • What impacts does inflation have on my portfolio?
  • When should I take my workplace pension and how that does factor into my other income streams?
  • Is it more beneficial to draw down non-registered money before RRSPs and TFSAs?
  • And much, much more…
Knowing how to demystify the retirement income puzzle is not trivial work but it’s absolutely something we can help with – we’ve helped dozens of clients in the last few months alone!
If you need some help solving your retirement decumulation puzzle (i.e., how to efficiently withdraw from your retirement accounts), or figuring out if you have enough saved from any portfolio you’ve constructed we’re here to help answer those questions and more!

If you are interested in obtaining private projections for your financial scenario, please contact us here to get started.

Thanks for your ongoing readership and for sharing this site with others – our site is growing thanks to you!! Stay tuned for more case studies and we look forward to your comments on this post.

Mark and Joe.

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