E. A Look at Some Typical Early Retirees

It may help you to know that certain models of semi-retirement have emerged that work for different types of people. They are described here not to limit your thinking, but to give you an idea of the diversity of people and paths available.

MBA Moms Pulling Back

Vast numbers of women have been practicing early semi-retirement for years, dialing up and down their involvement in the workplace to accommodate career development, kids, a need for extra income, elder care obligations, or more time for personal growth. Those with more family income have, as a group, opted for less work.

Example: An Artist Freed From the Law. Wendy was one of those kids who always wanted to be a lawyer. Ever since she came to the United States from Asia as a girl, she pushed herself to succeed in school even harder than her anxious parents pushed her. Graduating from law school and clerking for a judge set the stage for building a private practice helping scientists and other professionals immigrate to America. But after 15 years, the constant drains of dealing with government bureaucracy and stressed-out clients were taking a toll.

Wendy and her husband Ron had been planning their retirement for years, and they decided that it made sense for Wendy to start first. She helped her staff find new jobs and gradually shut down her practice, finishing off old cases and refusing new ones.

The transition out of full-time work was a breeze for Wendy. With two sons in elementary school, she began at once to improve her network of nonworking friends and moms and discovered a whole new world of activities were now available: book clubs, lunches, play groups, and events, as well as the informal information mill about what was really going on around town. And she finally had time to commit to caring for her aging parents.

During that first year, Wendy also rediscovered her love of costume jewelry and began designing and creating pieces for sale. She hosted trunk shows in her home and set up displays at art fairs and charity benefits, taking great pleasure in seeing other women wear and appreciate her creations.

Wendy is now active in a number of community organizations, was appointed to the local Human Rights Commission, joined a yacht club, became a member of the Garden Club, and actively volunteers at church and a local nature center.

"None of this ever had a chance to come out when I was working full time," muses Wendy, describing this creative side that has flowered since she left law. Lifelong stomach problems have disappeared, sleep is complete and restful, and she looks vibrant. "The boys have really benefited, too," she adds. "The extra time we've been able to spend with them has turned around a few potentially messy developmental issues."

Geeks on Permanent Vacation

Semi-retirees fitting this profile tend to be highly intelligent and independent engineering or scientist types who love nothing more than working absorbedly in their shops or labs. These innovators long ago decided that most bosses cramped their styles, and so they used their skills to earn enough money to leave more traditional workplaces.

With plenty of free time to follow their passions, they continue to invent or innovate, do consulting or project work for money, and keep their skills fresh while crafting lives with plenty of time for families and hobbies alongside their work.

Example: Working Hard -- and Hardly Working. As a young graduate facing the job market about 25 years ago with a fresh mechanical engineering degree, Chet had a few early career positions designing nuclear submarine and HVAC systems. But the coat and tie chafed at him, and he longed to get back out into the field and get his hands on some tools.

At night and on weekends, he and his wife Valerie worked on a handful of apartments or homes they bought and slowly transformed those dilapidated San Francisco properties back into things of beauty. They had started in the mid 1980s, while still in their 20s, and rode a wave of appreciation in California real estate.

But a decade later, feeling the city wasn't the best place to raise their kids, Chet and Valerie did the math and realized they could almost live off the rents from their homes. They piled their two young daughters in a station wagon and began driving around the Western states, seeking a new rural home with a good quality of life. Settling on a small town in Northern California, they began building a house, home schooled their daughters, and got actively involved in the community.

Chet built a big workshop and began fabricating electromechanical pumping and filtration systems for a small company in the California wine industry. A few years later, he formed a small company with a partner and now markets these services directly, allowing even more control over his own schedule. He works when he feels like it, taking only jobs that he knows will be interesting and lucrative. His schedule runs the gamut from an occasional intense workweek to time off for an extensive camping trip around the Western states. The income from the real estate covers the family's main living expenses, while any outside income goes toward travel or other hobbies. If outside income is curtailed for any reason, they know they can cut back on the luxuries without any worries.

Recently, Chet converted a VW Bug to run on battery power -- and now tools around town in an odd vehicle that looks like some kind of pickup truck, with the batteries lined up under the truck bed. In his spare time around home, he tinkers with alternative energy inventions or helps coach his daughters' baseball and ski teams. He has finagled life to give him exactly what he wants: plenty of free time to work on all his projects and enough money so he never has to worry about finances.

Perpetual Travelers

Living out of a backpack and exploring the world may not be everybody's idea of a perfect life, but it has a strong pedigree in semi-retirement circles. Settling down for a month or a year in places such as Argentina or Thailand, house sitting in a luxury home in Hawaii, working as a resort manager or bartender during the season in Costa Rica, then moving back to a no-maintenance home base in the U.S. to reconnect with family and culture -- this is the Perpetual Traveler's life.

Not only do such folks see the world and meet incredible people while they are young and energized, they are able to do it on a budget that makes even rural American semi-retirees look profligate.

Example: Wildflowers Don't Care Where They Grow. For 14 years, Billy and Akaisha have moved between home bases in Arizona; Chiang Mai, Thailand; and Mexico to points throughout South America, Southeast Asia, and beyond.

They are passionate about their travels and about volunteering or helping people along the way: teaching English, visiting western prisoners, or cleaning gravesites of locals and Americans buried overseas. The local American Legion keeps them apprised of volunteer opportunities and needs. During the '90s, they lived for a number of years in Chapala, Mexico, where they helped local photographers develop a postcard business and got a basketball scoreboard donated, from the U.S., for the local high school gym. (Billy was coaching the basketball team and despaired at the way scores and times were mangled under the antiquated flip charts and stopwatch methods in use when he arrived.) His pride and joy was volunteering to raise funds to build five municipal tennis courts for the town, then overseeing their construction.

By renting homes and moving slowly, Billy and Akaisha make lots of new friends as they get to know locals and other travelers, becoming part of the community. When a situation feels right, they'll take on jobs along the way -- usually resort restaurant or bar management for free room and board types of roles, but sometimes they house sit. Akaisha had a thriving card business in Mexico that gave jobs to local women artisans and brought in several thousand dollars a year at its peak. These work gigs help cover their already-low expenses and fit into their philosophy that they are living a lifestyle, not a vacation.

As a practical matter, they keep U.S. catastrophic health insurance but pay locally for health care; it is cheap and high quality. They return home roughly once a year, to a low-maintenance "lock and leave" community, where they store Akaisha's art supplies, the cooking equipment needed for their foodie habit, and other personal effects. Email lets them keep up with family and friends and receive reports from neighbors about anything needing attention at their home in the states. On their Web page at www.retireearlylifestyle.com, they report about their travels and work gigs and opine about the semi-retirement lifestyle.

Semi-retirement has been perfect for Billy and Akaisha, affording them flexibility, for example, to provide end-of-life care for parents and to be with family for extended periods. Convinced that more people could semi-retire as perpetual travelers and enjoy life a lot more, Billy quips, "Half of California could sell the house and do what we do."

The Millionaires Down the Road

These semi-retirees take advantage of the low cost of living and lack of pretension in rural areas to retire comfortably, on their own terms, without a huge financial strain. Sometimes referred to as The Millionaires Next Door, a term coined by author Thomas Stanley, who catalogued their behavior, these unassuming people often invest in real estate, start and sell businesses, or just save diligently. Although they typically have at least a million and a half dollars in combined savings and real estate, they live frugally and make that money last.

For them, quality of life means not working for someone else and having lots of time for family and toys and avocations: fishing, motorcycles, or wind-generating power plants. Their 14-year-old pickup truck not only helps hold down expenses, but allows them to keep a low profile despite their business and financial sophistication. And to compensate for geographic remoteness, they use the Web and national media to stay abreast of trends and information that interest them. Typically, their kids are grown and have moved away from home.

Example: The Good Life in the Heartland. Bob epitomizes the values and behavior of The Millionaire Next Door -- living frugally but comfortably in a small Iowa town, driving used cars, and holding the monthly food bill for a family of four to just $400 a month. He and his wife Julia actually got a relatively late start financially; it wasn't until Bob was 38 that they really started saving. In just 14 years, though, he and Julia amassed enough for him to leave his job and retire. For them, saving became almost a family hobby, as they socked away more than 50% of their gross pay.

Not only do Bob and Julia live below their means, but they live in a place in which means are themselves well below the national average: Plenty of nice homes in the area are priced in the $60,000 to $90,000 range. Bob has been working on creative ways to save for years, even appealing to his daughter's college president for a better financial aid package. In the end, the president wouldn't overturn his financial aid officer's decision but did offer Bob's daughter a job in his office -- an opportunity that opened many career doors for her and, incidentally, kept the contribution toward their daughter's state college education to just $7,000 for the full four years.

All told, Bob, Julia, and their family live very comfortably on about $45,000 a year, including health insurance, taxes, car amortization, and fund management fees.

Now in semi-retirement, Bob and Julia are contemplating a move to a college town in northwest Iowa where Bob's parents live, as he expects to be providing more care for them in the coming years. Julia expects to continue to work in a medical office for ten or 12 hours a week, something she very much enjoys, and the new locale will provide opportunities for concerts, lectures, ethnic restaurants, and a whiff of excitement. Bob has already picked up a few paid writing projects and is enjoying having plenty of free time.

Bob believes that a low tolerance for BS at work is often the trigger that gets the semi-retiree to start planning an early exit, but the ones who actually make it tend to be creative, self-sufficient, intelligent -- and completely committed to financial independence.

The Half-Millionaires in the Next Apartment

These semi-retirees have taken frugality to the farthest comfortable limits. They live, perhaps singly or as a couple, on about $25,000 a year, usually with no kids. Renting an apartment can help keep more money free to invest.

Their budget secrets: Drive an old car, eat simply, keep the heat turned down. But never compromise on high-speed Internet connectivity. That's the lifeline to their world, including consulting or freelance work that helps pay the bills. They camp or stay with friends when they travel; hotels are for somebody else.

Example: Walden on the Bay. Phil lives simply in the San Francisco studio apartment he owns, spending just $1,000 a month. He never liked having a job, so the financial sacrifices he makes to be semi-retired seem well worth it and are, in any event, consistent with his deeply green, conservation-oriented beliefs.

Even though he is able to eat organic food and eat often at Thai restaurants, he makes sacrifices in other areas, using electricity for little more than his small refrigerator, a computer, and a reading light. Candles look better anyway, and he saves money by using the Internet at the library.

Phil carries a high-deductible health insurance policy but walks or bikes everywhere as he chooses not to own a car. Expenses are further curtailed by the fact that he has not had to pay income taxes for years.

Phil spends his days volunteering in environmental projects and activities, including some that have taken him to the Amazon and Europe; a major environmental organization provides him free travel, willingly paying to get his specialized skills. On Saturdays, you can often find him at a nearby national park giving free tours to visitors. Volunteering as an usher at a local movie theater gets him plenty of free tickets to art house movies.

He loves his life, feeling liberated by its simplicity, and feels no sense of deprivation. In fact, Phil considers himself a bit of a spendthrift compared to other folks following the simple-living lifestyle.

Bankers With Off Switches

These overachievers got stock options or bonuses for enough years so that accumulating savings was never a problem. But with corporate mergers and the inexorable narrowing of the pyramid, they found themselves in their 40s increasingly turned off by the high stress and competitiveness of their careers. Realizing they don't need to overwork, they do the math on their municipal bond portfolios alone and take the exit package.

Once their noncompetes expire, some start a little hedge fund, some join a few boards and make some angel investments, and others start actively trading a large personal stock portfolio a few hours a day. Women on this track may switch to full-time motherhood, perhaps as a spouse or partner continues to work.

These semi-retirees tend to stay in the same homes and communities they lived in while they were working, and if they have children, they keep them in the same schools, perhaps planning to move when the kids are off to college.

Example: Type A From the Bottom Up. Following a rapid and stellar career in finance, Duncan, at the age of 44, was weary of the unrelenting pressure on Wall Street. His financial needs had long since been met, so he resigned as the CEO of a major investment firm to take some time off and regroup.

It was a difficult adjustment. Duncan's career focus had left him with few outside interests, and it was taking time to grow them again. His consulting and unpaid work on nonprofit boards and in local government was fulfilling, but as someone who had once managed 750 people and a billion dollars of revenue, he kept hearing about friends getting big jobs with big salaries and began to fear that semi-retirement had been a huge mistake.

After a year, he agreed to a friend's request to interview for a senior position at one of Wall Street's most prestigious investment banks. But if he had any doubts about semi-retirement before, he put them to rest that day. Not one of the managing directors at the firm seemed to want to talk about his experience solving a major financial crisis or hear how he had worked to unravel the fraud at a major bank. Instead, they wanted to talk about semi-retirement. Every single managing director looked wistfully at Duncan and, in a lowered voice, asked what his days were like, whether he was able to live off his savings, how much time he got to spend with his kids. Duncan realized then that these titans of Wall Street envied him; they felt trapped and they wanted out. That was enough to convince him that semi-retirement was his path, and he has stayed on it ever since.

In the last several years, Duncan has become quite active in his community, helping the local YMCA raise several million dollars for a new building, being elected to the local city council, and recently being appointed as a commodore at his yacht club. For his work projects, Duncan rented an office in his local village, where he has helped launch a hedge fund. He makes sure to keep his hours reasonable and enjoys the camaraderie, the challenge, and the chance to stay active in the investing game, while being just minutes from his family and community activities.

Duncan's recap after four years of semi-retirement: "Type A people need to feel they are changing the world, and in business you are used to doing that from the top down. Now my activities have impact from the bottom up, one person at a time, but the impact is just as meaningful and even more satisfying for me."

Exotic Transplants

These semi-retirees do the math on how much it costs to live in the United States and take off for distant parts. They tend to congregate in a handful of expat-friendly countries such as Mexico, Costa Rica, and Thailand -- though a new generation is finding that Panama, the Dominican Republic, Vietnam, and Ecuador are less discovered and offer better value. Typically they do not have children or their children are grown, and they find the lower cost of living outside the United States helps make semi-retirement possible years before it would be at home.

They may start a small hotel or business, catering to foreign tourists or importing and exporting products. Quality of life can be quite high. Costs of living can range between $1,000 per month on the low end to $3,000 per month for multiple full-time domestic staff and all they can eat or spend. They pay locally for medical care and, as American citizens, must pay U.S. taxes on investment income, but they avoid U.S. property and state income taxes. And when the time comes, they know that Social Security checks will follow them overseas.

Example: Where the Grass Truly Is Greener. Beginning in the 1970s, Willem and Ruth worked hard, extensively remodeling their penthouse apartment in Manhattan and traveling the world with their two kids. As layoffs and mergers went on around him, Wil continued to defy the odds, staying employed for more than 20 years through much tumult at his large global information firm.

In the 1990s though, with the writing on the wall, Wil and Ruth began looking for a place to semi-retire. They had always loved Central America and began scouting properties and locations there for the next chapter in their lives. Antigua, Guatemala, offered a perfect setting -- its Spanish colonial architecture beautifully preserved since the early 1800s when a rumbling nearby volcano convinced the town fathers to move the nation's capital from Antigua to Guatemala City. They bought a property in the center of town and began making plans.

A few years later, Wil and Ruth sold their penthouse apartment -- creating the bulk of their semi-retirement portfolio -- loaded up a tractor trailer with all their personal goods and another truck full of plumbing fixtures, which they sold quite profitably; and drove to their new home. They spent the next three years doing what they do best -- renovating a charming old property -- and now own a home, several spacious apartments, and a few shops on the main street in Antigua. They rent shops and the apartments to Americans; many international aid organizations have staff locally, and American families regularly need to stay for a few months while adopting Guatemalan children.

As they have always done, Ruth and Wil jumped into civic life in Antigua, creating a beautification committee that raises funds and has now built over 100 minigardens in public spaces all over the city. Wil raves about the great Internet connectivity, the dirt-cheap cell phone service, and their four full-time staff -- a housekeeper, cook, handyman, and gardener -- who together cost just $800 per month. Wil built and maintains a website for Antigua; the site's advertising revenues support a local hospital for severely handicapped children. With annual expenses of less than $30,000 and income from their new guesthouses, Ruth and Wil are living comfortably on their portfolio, donating generously to local causes, and living the life of their dreams in a beautiful location.

Government Employees

These semi-retirees, from among the one in seven U.S. employees in the public sector, find the challenge and security of government jobs, along with the attractions of a government retirement package, are ample compensation for forgoing the higher salary they might have earned in the private sector. Then they find the right spot -- not all government pensions are created equal -- max out their 403(b) and other savings plans, and count the years until their early retirement option becomes available, typically after 20 to 30 years of service.

Their generous health care benefits and full inflation-adjusted pensions, along with the power of governments to tax to ensure the benefits remain intact, signal the gold standard for secure retirement packages. Still, because of their low salaries while on the job, the only assets these semi-retirees may have are their pensions, so it is crucial for them to save along the way to provide for extras.

Example: The Slow Lane to Success. "Fifty and out!" chuckles Marty as he describes the plan he and Carlos, his partner of 32 years, worked on for more than 20 years. Marty credits this vision to seeing his father retire early and thinks that role model was crucial to his retirement planning. From the start, in the 1970s, Marty chose to work for the State of California, vesting in a safe pension and laying the groundwork for his early exit from the workforce.

Since Marty retired at age 50 in 1997, he and Carlos have been living comfortably but modestly on the gains they realized from their real estate holdings and pensions, including Carlos's long-term disability from his job as a building inspector in San Francisco. Although Marty receives only about 30% of his former salary, the proceeds from the couple's real estate sales are easily keeping them solvent until they can begin tapping their IRAs or Marty's savings plan.

Once financial matters were in place, the two quickly moved on to the things that inspired them in life. "I really like to restore things, create things," says Carlos. He and Marty had profitably bought and remodeled two houses in San Francisco during their years there, and on moving to Portland, Oregon, soon after retiring, they plunged into their third real estate project: restoring a three-story 1910 Craftsman-style home. Marty volunteered in his neighborhood association and was soon elected its president. He admits that it "turned out to be more than a full-time job" but learned a lot from the experience.

Feeling the need to step back from their overly ambitious commitments, and relishing their freedom to change course, they sold their Portland home and moved to New York City. For the past several years, they have been exploring all that New York has to offer. Carlos continues to find "treasures" in thrift shops that he lovingly restores, and Marty is able to sit on the board of the YMCA Camp he attended as a youth. Marty's French lessons give a clue to their next goal: regularly spending a few months at a time in Europe.

In the meantime, they have plenty of time to visit Carlos's family in Ecuador and Marty's family and friends. They have developed a laundry list of strategies for living modestly in the Big Apple, including buying into a beautiful, though far uptown, neighborhood and cashing in on Carlos's uncanny ability to land inexpensive last-minute tickets to Broadway shows. "You've got to be flexible," he advises, then waxes philosophical: "Figure out what's important in life. Too many Americans are driving themselves crazy buying things." Marty adds: "Once you leave full-time work, you've got to develop pillars to give your life some sense of structure."

Still Figuring It Out

Semi-retirement is a work in progress, and it would be a mistake to imply that all semi-retirees have their plans clearly set.

Most people go through a period of several years, maybe even longer, trying out different ideas, locations, and work options while slowly finding the right balance as individuals and as a family.

EXAMPLE: Trying Things on for Size. Marissa and Steve enjoyed their careers in architecture and finance but tired of the strains of big city life. A few years ago, in their mid 40s, they decided to semi-retire and began making plans. After slowly disengaging from their careers and selling their home in the city, they began a long tour around the Southeastern U.S. looking for a new place to settle. Gus had always been a real estate investor and envisioned a semi-retirement life based around these investments.

Settling in Mobile, Alabama, the couple bought three Craftsman-style properties near downtown, found good tenants, and began trying to settle in. During the same period, they traveled to Panama and invested in several preconstruction condo hotel units there at attractive prices.

Within a few years, though, they had begun having doubts about Mobile as a place for them to stay. "We keep looking for things to do here and it has been dawning on us that the town is a little sleepy and there might not be enough here to keep us interested long-term," notes Marissa wistfully. The couple is considering moving to Panama, especially after a recent visit to the scenic Boquette area, where many expatriates are settling. "We might settle there, or we might move around for the next several years. We really like living in developing countries and are drawn to the perpetual traveler lifestyle," Marissa says.

Steve has his sights set on Argentina next, and the couple can imagine themselves buying and selling property in a number of places in the developing world that they see starting to become attractive to expatriate retirees. Buying in extremely early, during preconstruction stages, and renting or flipping the properties as they appreciate, feels like a sustainable investment model to them.

They see themselves almost as collectors, living in each place long enough to understand the market, make their investments, and add to a growing collection of properties, all while collecting adventures, new friends, and new experiences.

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