Are You Familiar with the Idea of Semi-Retirement? How to Prepare for It?

People inching toward retirement age feel impacted when stocks and bonds hit rock bottom. Their energy and hopes of making and saving more money look like an impossible dream. They believe they must spend more time on the job to secure their future. However, the experts talk about something called semi-retirement that precedes the retirement stage. Many people walk this path today. In this phase, you work at a pace that suits your mind and body. You travel, volunteer, and do everything you like. A well-planned semi-retirement cycle can help you reap financial and psychological benefits. Instead of sitting idle, you work and save while drawing money from different investments.

Self-employment benefits and obligations

You can establish a business that gives you immense freedom to operate at your convenient time. It’s a responsibility, but it hugely benefits. You can save tax on business expenses, covering travel, home office, phone bills, health care, and more. A self-employed individual pays a 12.4% tax for Social Security on earnings amounting to USD $160,200. Total net income from Medicare attracts 2.9% of tax. Due to lower yields in semi-retirement, your tax liability can be less. There can be a problem if you withdraw Social Security income before the eligible retirement age. If you make USD$2 over the income limit of USD $21,240 in 2023, the administration can deduct USD $1 in benefits.

Retirement plans

You can open a solo 401(k) or a SEP IRA as self-employed. For help with Solo 401(k), you can drop by You can contribute a good amount to these accounts. While both options are easy to pursue, a solo 401k offers more attractive features. You can borrow from your account for business growth. Plus, you can put money in a Roth in an after-tax style. A SEP IRA doesn’t allow this. Also, SEP IRA enables you to contribute just as an employer, while the other lets you contribute to your plan both as an employee and employer. Of course, the annual contribution limit doesn’t exceed. But double contributions help you save more tax money on your income.

How much income can you shift to your Solo 401(k) in 2023? Maximum contribution can be up to USD $66,000. Someone aged 50 or more can add USD $73,500. In 2022, these contribution limits were lower USD $61,000 and USD $67,500, respectively. It applies to every participant. Suppose your spouse works with you in your business. You can open two accounts for each person and shift your income per the contribution limit. For this account type, you must follow two main rules – self-employment and no full-time W2 employees working in the company. Spouse is an exception. Imagine your investment opportunities can also be so widespread with such contributions. After all, these types of retirement plans allow diversification.

It is all about perception and comfort. Some people treat semi-retirement as a transition stage from career to retirement, while others consider it a second career inning. Still, the best is if you focus on your health and take things lightly. Finances will be the top priority, but you should also have enough time.