How I Plan for Cyclical Early Semi-Retirement Using the 20 Percent Rule

The recent economic crisis, the thousands of layoffs and the prevalence of part time work have not only increased the number of early retirees, but have also made the idea of early retirement or semi-retirement attractive for many.

In particularly, I make the case for cyclical models of early semi retirement for many reasons. In my view, the most important one is mental sanity. Working nine to five for thirty years is wage slavery and, I would argue, inhumane. Human beings need leisure, we need time with our loved ones, to pursue our hobbies and passions, and to find out who we are.

Also, many of us are realizing that, without having certifications, post-graduate education or other such credentials, our prospects are considerably diminished within the present job market. A working adult with huge fiscal responsibilities has little ability to focus on education. One way to prepare to pursue post-graduate education is to plan a cycle of early semi retirement, where one works and saves diligently for five or six years and then takes a sabbatical. This is my own personal incentive for my next ESR cycle.

The model that I am using in my own cyclical semi-retirement plans is the 20 percent model, which requires a living wage and a very strict savings plan where a full fifth of one’s income is invested over a five-year period. The mathematical rationale for this is that if we save 20 percent of our income for five years, the amount saved will equal one year’s income.

This model is not entirely perfect. Since inflation hovers around 3 percent, it requires that I park my saved funds in investment vehicles that earn more than 3 percent so that my capital will preserve or increase its value. I also must manage the level of risk by choosing more volatile investments early in the process and less risky ones as the savings part of the ESR cycle is ending. These are decisions that every individual must make, but the difficulties are not insurmountable.

The 20 percent model facilitates a cyclical early semi-retirement cycle every six or seven years. The duration of the semi-retirement portion of the cycle varies depending on how much part-time or residual income we generate during it.

If in 2012, a fully employed worker is earning $40,000 and gets paid on the 15th and 30th of every month, the model would require an investment of $333 to be set aside with every paycheck. At the end of five years, the money saved would equal one full year of employment plus whatever revenue the investments originated.

This means that, if the person lives a frugal lifestyle and has been diligent and prudent in her investment choices, the person may be able to work half as much for two years while relying on her reserves for the other half of her income, or if a person chooses to not work and instead study or pursue some other non-paying interest, or start his own business, then the one year clock is ticking.

Oftentimes, when retirees or early semi-retirees face having too much time in their hands at retirement, they unexpectedly feel unproductive and depressed because their identities have been tied to their jobs for too long. They have not had time to develop the social networks, to engage in the hobbies and nurture the habits that will make semi retirement a fulfilling experience. ESR is the perfect rehearsal for the real thing.

Unfortunately, many people who are near retirement have a diminished portfolio and would also benefit from semi-retirement in their golden years. Others are forced into retirement by their companies during difficult times, and others simply lose their jobs and it’s as if a rug is pulled from under their feet. In all cases, planning ahead is invariably superior to facing a last-minute retirement cycle for which one is not prepared both mentally and fiscally. For all these reasons, I strongly favor the cyclical model of early semi-retirement.

Every so many years, a bear market will hit us and it’s better to learn from the bear: it sets up reserves during times of plenty and lives off of them during hibernation, when resources are scarce.


The above article originally appeared on Yahoo Voices.

About hiramcrespo

Hiram Crespo is the author of 'Tending the Epicurean Garden' (Humanist Press, 2014) and 'How to Live a Good Life' (Penguin Random House, 2020), and founder of He's also written for The Humanist, Eidolon, Occupy, The New Humanism, The Secular Web, Europa Laica, AteístasPR, and many other outlets.
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