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The Retirement Power Hour
The Retirement Power Hour
How to Retire Early Using Phases
Do you want to retire now and gain more freedom sooner? The answer could be yes, but the path to achieving it might differ from what you imagine. In episode #30 of the Retirement Power Hour, Joe Allaria, CFP®, and Mark Allaria, CFP®, sit down and discuss ways you can retire early using phases. Many people envision retirement as abruptly shifting from a 40-hour workweek to working zero hours. However, incorporating a semi-retirement phase can allow you to experience retirement earlier and can offer additional benefits.
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Disclaimer:
All material discussed on this podcast is for educational purposes only and should not be construed as individual tax, legal, or investment advice. Investing involves risk of loss and investors should be prepared to bear potential losses. Past performance may not be indicative of future results. Joe Allaria is an Investment Adviser Representative of , a Registered Investment Advisory firm. Information discussed on this podcast may be derived from third parties that are believed to be reliable, but CarsonAllaria Wealth Management does not control or guarantee the accuracy or timeliness of such information and disclaims all liability for damages resulting from such sources. Any references to third parties are provided as a convenience and do not constitute an endorsement.
Learn more about CarsonAllaria Wealth Management at https://carsonallaria.com/
Invest Wiser & Retire Better!
So, can you retire now and get more freedom sooner? The answer might be yes, but the way to get it done might not be exactly how you're picturing. And what I'm talking about is retiring, but doing it in phases. See, most people think about retiring and they think of going from working 40 hours a week to zero hours a week. However, if you add a semi-retirement phase, it can give you a taste of retirement and it can come with additional benefits as well. Welcome everyone. This is the Retirement Power Hour episode 30. I'm your host, Joe Allaria, joined today by my co-host and fellow wealth advisor at Carson Alaria Wealth Management, Mark Allaria. Mark, thanks for joining the conversation today.
Mark Allaria:Yeah, I'm excited to have a good discussion about retirement here.
Joe Allaria:Well, we're talking about retiring in phases, and really what we're talking about is something a lot of people overlook. And I think it's semi-retirement. And semi-retirement is something that I've witnessed personally, I think you have as well, with clients. It's something that has gone very well for the clients who have entertained it as a strategy. And a lot of people out there are dying to get out of their job, whatever it is, whatever they've been doing for a long time. Some people, they're at the point they'll do anything else. They just want to get out, but they may not be ready to fully retire. And like I said in the opener, a lot of people are just looking at this thing like I have to go cold turkey. I have to go from 40 hours a week to zero. And that's not really the case. These people have a lot of expertise built up, and this phased sort of retirement is something that gets completely overlooked, but I think is an extremely valuable solution for people.
Mark Allaria:Absolutely. Just some strategic outside the box thinking has been very beneficial to a lot of people I work with on slowing down but not completely quitting. And it's really enhanced their lifestyle in general.
Joe Allaria:I'm picturing people that that have expertise in a specific field or area, but they really don't want to keep working. And sometimes we sit down, we do retirement plans for people, and they kind of need to keep working for a few more years. And but there's some people that they'll do anything to get out of their current position. They're overworked, stressed, burnt out, whatever it is. And so, you know, we're gonna talk. I mean, we're just gonna dive right in and start talking about this because we've got stories, we've had clients that have fallen into this, we've counseled clients into trying to create these situations. I've seen it only go extremely well. And it starts with the financial side. Okay, instead of going from earning my full salary to nothing, I'm gonna actually keep earning some money in retirement.
Mark Allaria:Well, sure. First thing is when you completely cut cold turkey and you reduce all that income, the first thing you got to think is where am I gonna get this income? And it always comes from the portfolio, right? Social Security and the portfolio. So if you can lessen the draw from the portfolio for a few years, it certainly helps the longevity of your assets and gets you a more promising look at having assets through your lifetime.
Joe Allaria:There's things that when we do retirement plans that people bring up in retirement, like, well, what if I have to buy a car or if I work a few more years? And the impact of each factor, I think it's hard for people to wrap their head around. For example, a one-time expense in retirement, very little impact. But this is something right here where we're talking about if you're gonna add 50% of your normal salary for five extra years in retirement, that's gonna have a significant impact from just retiring cold turkey. I don't think a lot of people know that or understand it until you sit down, you pull up a retirement planning software and you show them what it looks like.
Mark Allaria:Oh, absolutely. I mean, you think about people that are making six figures a year, say $100,000 a year, and that's a lot of money. And then they go to a modified role and they make $50. Well, that feels like such a huge pay cut. The way to look at that is like I got $50 coming into my household that I don't have to pull for my portfolio. A million dollar portfolio, that's five percent you're not withdrawing.
Joe Allaria:And it feels like not a big deal because you're thinking, I'm used to making a hundred, I'm used to making a hundred and fifty or two hundred or whatever it is. What difference is it gonna make if I make thirty thousand, forty thousand, fifty thousand dollars a year? That's way less than what I'm used to making. It can't be that significant. But like you said, if if I have a million-dollar portfolio and I'm all of a sudden not taking out 40,000, that's 4%. That may be all I need when I couple it with Social Security or a spouse's income or something like that. You think about the factoring or the compound effect of that and factoring in compound interest, not only in those years, but if it's $50,000 a year that you left in there for five years, that's $250,000 above where you would have been. That's compounding every single year.
Mark Allaria:So, yeah, the compounding effect's huge. You know, I can just visually look at our cash flow analysis. And again, to your point, Joe, taking $50,000 a year out of your portfolio for five years, it's a quarter million dollars you're pulling out of your portfolio. Well, if you're making $50,000 a year for five more years, even though it's a third of your income or even 25% of your income, it's $250,000 you didn't have to take out of your portfolio, which takes years and years to save. So that's a big component. The other component on the financial side, I would say that we can't leave out because it's a very big deal, is the health insurance side of it. So we've had a lot of clients go from working 40 hours a week to 30 hours a week and they stay on the health insurance for the company, which is a big deal because everybody knows you could be spending a thousand bucks, twelve hundred bucks a month on health insurance for just you, not including your spouse. So another huge financial benefit is being able to stay on the benefit side of the health package, especially if you're under 65, because the coverage could be expensive.
Joe Allaria:You know, Medicare is one thing, it's it's a lot to wrap your head around. But if you're trying to get health insurance coverage before age 65, maybe you wanted to retire at 60, but you decide to maybe work part-time or semi-retire and you can retain that. That's a huge benefit to just be able to continue to do that, especially if your company's paying for it. And you might be getting that 401k match, three or four percent, but it's something. And the financial benefits are all good. And some people out there don't even necessarily need the financial benefits. Maybe you're in a great position to retire financially, but there's other benefits too. I'm talking mental, emotional. If you're in a very stressful position and you just want to get out of it, but maybe you sort of enjoy what you do. I've talked to some clients that it's not really what they do, it's just it's how hard they do it, how hard they do it, how much they're working. I mean, I could see it in our job. I enjoy what I do, but if I was overworked doing it all the time burnt out, that's not as fun.
Mark Allaria:Great point. I see that often is people are just at their end. What we find in with a lot of our client base is they've worked with a company or in an industry for a long time and they become very valued, right? From their employers, and they're valued because they're good at what they do, and the more valued they become, the more work they get. And now they take more of it with home with them, and there's more stress that comes with it. So a lot of times it's just I gotta run and get away from this because I don't want to do this very much longer. So the responsibility correct, correct. So the stare stepping down of things becomes very valuable because not only are you getting some time back, maybe you're getting some of your stress relieved as well. And again, that's that's a huge emotional component to this.
Joe Allaria:But on the other side, I think the mistake you can make is I just want to get away from this, but now I'm gonna retire and I haven't really thought about what I'm gonna do every day. And and I'm gonna spend eight hours a day now on my couch. Or I heard a story of a conversation that we had with someone that we met with one of our advisors met with, and our advisor has, What are you doing to fill your time? And he's like, I spend a ton of time on TikTok now. I mean, yeah, he literally literally, and that's no no judging, but that's not good for you. That's not good for your mental capacity and your cognitive not development, but you maintaining that your level of cognitive function. That's a good way to put you in the vortex and take you downhill mentally. You're just scrolling all day long. That's not good for you. So finding like a happy medium, you know, staying engaged with a job, I think, from a mental standpoint.
Mark Allaria:Quitting anything cold turkey is really challenging. And I think that people don't often think about while they might be drugged down from how busy and how stressed they are, their mind is engaged every single day. So it's one thing we often talk about to clients who are getting ready to uh retire is hey, what are you gonna do? Because we've seen that six months and the year end of retirement is like, hey, this isn't all it's cracked up to be because they're bored, they don't have another hobby or something to do. So we always challenge them to hey, make sure you have something that you can keep yourself sharp and engaged in if you are gonna step away and give you a reason to get out of bed. Absolutely.
Joe Allaria:Have some people that are depending on you for something, it gives you a sense of purpose. I'm not saying your job, someone's job is their purpose. I don't I don't believe that at all, but it gives you a sense of purpose to have something and get up and say, someone's counting on me to go do something today, I'm gonna go do it, and then then I'm gonna feel like I accomplished something and and had a good day. The social aspect, a lot of people, when you go to work, you're around people. And if you're older or near retirement, a lot of times it's natural there's a lot of folks in your workforce who are younger than you. It's like when you have kids, you hear the phrase, yeah, kids they'll keep you young. People around you will keep you young.
Mark Allaria:Yeah, absolutely. Yeah, the larger the work environment, the often the more times you see that. But again, it just goes back to staying engaged, right? If it's staying engaged intellectually, staying engaged emotionally with your company, or staying engaged socially with the people. Being a recluse is not good, right? From a mental standpoint or a social standpoint.
Joe Allaria:That sense of community that you could get going to work, and then maybe opportunities for mentorship when you go into the office. Those are all the social aspects. I had one, a client that he was one of those really wanted to retire and wasn't quite ready yet from a financial standpoint. He was ready mentally, emotionally, and just was burnt out, wanted to get out and kind of fell into this because he ended up taking the leap and just was like, I have to do this, I have to retire. And then his company had someone else retire, and they ended up contacting him back to say, There's only so many people we had that knew this system, you're one of them. We have no one else left. Will you please just consult for us? And he he was making maybe 20% of his salary, but his requirements were so little. It was basically just like check your email. If any problems come up, can we please contact you? That's it. And so it was the absolute cake dream position. And although it was 20% of his income, it made a huge difference as far as his retirement track.
Mark Allaria:Yeah, I could use a number of medical professionals, and that doesn't obviously only go to this industry, but a lot of medical professionals they're working five days a week and you know, seeing 15, 20 patients a day. And the next step is you're going to go to four days a week and then three days a week, and then even down to one. And again, they love what they do. It's just the five-day a week grind. They've done it for 25, 30 years. It's just they're ready to take a step back and they can still make good money, right? In four days or three days and still stay plugged in. So that's been a very common one that I've seen. I think that as an employee, I often see as you start in the workforce and you're 21 or 22, and you're a yes, sir, yes, sir. I'll do anything you say, sir. And you're just thankful to have the job. I'm not saying this in a negative way, like you should be looking for leverage, but as you've aged in your career and now you're in your 50s, you're still a yes, sir, no, sir, or yes, ma'am, no, ma'am guy. However, you become way more valuable to your employer than you were when you were 21. And I think sometimes our clients lose sight of the leverage that they might have of thinking, like, I have to do it exactly this way, or I can't do it at all. As an employer, I know how valuable our people are, and I want to make sure that our company continues to run smoothly. And sometimes losing somebody is not great.
Joe Allaria:And we were talking about this. I had like we had one of our longtime employees retired, and we were talking like, and I had joked with her about this. Yeah, like, hey, what if we had you work two or three days a week and we'd pay you this much, and you know, it wasn't for her, but I was 100% ready to offer that, and because it's much easier to do that than to go find a new person that you can trust who knows your business, who can do the tasks in your business. That's that's hard. So I think you're right, like leverage that. And I after kind of stumbling upon this idea as a as a really good strategy, I had a client who's in sales, and she told me that she's like, I love my clients, I have X amount of clients. I love working with about 80% of them. They're great. We have great relationships, they're almost my friends at this point, but there's 20% that it's like work. And I said, and she's pretty much ready to retire. And I was like, just go to your employer and tell them, hey, I have these relationships on these 80%. I'm more than happy to keep working on them, but I want to scale back. And so I want to reassign the 20%. But in that type of position in sales, when it's relationship-based, that's valuable for an employer. Like all they have to do is they know they're gonna keep those 80% as long as we keep this person. The 80%'s not going anywhere. Yeah, so why would you want to disrupt that?
Mark Allaria:Yeah, I think it really comes down to understanding who you are and your value to the company, and then having the courage to go in and speak with your boss.
Joe Allaria:Have you had any clients do that?
Mark Allaria:I have, yeah. One recently that just the typical um, I've been here for a long time and I'm extremely overworked. I don't feel like I can even take my vacation days. I have plenty of vacation days. I'm sure we've had a number of clients feel like this. I have vacation days, but when I take them, I come back, I'm just absolutely slammed, right? And we have all these new people, and I'm training them, and I'm really the only one that knows what's going on at the level I know. And it's not that they hate what they're doing, it's just they just hate the level of stress that it brings on them and the pressure. Yes, this person itself had the courage to go in and talk to and came up with a great strategy that's probably gonna keep him working three or four more years. But again, he was willing to say, I'll take a little less money and could easily do that, but I want less responsibility, less days a week. And the employers on the other side thinking, holy cow, you'll stay for three more years and train the next person, and it's just a burden off the employer. So it was a really, really good fix. So, yeah, that was a really recent one that um really worked out well for our client.
Joe Allaria:Our dad is another example who he is a guy that had to be done doing what he was doing, and from a financial standpoint, obviously, anyone, it's like financially, it's gonna be the best if you keep doing what you do full time as long as possible. But in his case, he was like, I just can't do it. So he went from doing that to something in working in IT to something totally different, driving a dump truck for a while, which that wasn't for him either. But he was willing to do anything to just get out of that office in the cubicle because he'd done it for 38 years, which I get that now. What we do is different every day, so I guess I don't relate as much, but I understand where they're coming from. And another client I had was tossing the same idea around. And with COVID, people, a lot of people were working from home, and companies were bringing people back to the office after COVID. And so she just she was ready, she expressed that she's ready to retire. And then her company again is like, can we is there anything we can do to keep you? And so she negotiated to continue working her normal job, but to just be remote. So she's like, Well, if I don't have to go into work and I can make the same money and do my job from home, that's got some benefits.
Mark Allaria:Stick around. Yeah.
Joe Allaria:The takeaway is to go make it happen. If you haven't thought about this and you're wanting to retire, these are conversations that I think would be useful. Go to your employer. First of all, look look around in your industry and see if you find any opportunities. But if not, like you said, Mark, go to your employer and just draft up the dream situation for yourself, whatever you want, and bring it to them. The worst they can say is no.
Mark Allaria:That's right. Again, going back to my original comment, I try to impart this in clients that have done this on just you have leverage, and that leverage sometimes be a nasty word, I don't mean to be, but you have an extreme amount of value to your employer, and very few employers are gonna be caught off guard by the fact that you're feeling the way you're feeling, they may just not know how to fix it. What we found is together you can and and make it work for everybody. It's coming up with a plan and and having the courage to have a discussion about it.
Joe Allaria:Yeah, and I I don't think that we're necessarily saying instead of retiring at 62, just tack on an extra five years. What I'm kind of saying is maybe, maybe you get to 60, maybe you get to 59, yeah, and say, Man, I'd sure like to start traveling more and doing more now and reducing my stress now. Well, maybe you can enter that semi-retirement phase instead of retiring fully at 62, maybe you go 60 to 64 or 60 to 65 and in some sort of easy semi-retirement mode where you're good. I mean, that that's what you're trying to design is a dream situation, a part-time job that you're using expertise, but you're you're not overworked. You're working two days a week. You're working three days a week, maybe you're working remote. You've removed all the negative parts of your position, and you're only doing the things that you enjoy, and you've got flexibility, benefits, and all that. People can usually do that for longer and have really no problem doing that. So this gets you that, you know, maybe gets you the taste of retirement sooner so you can start having more freedom. So, with that, I want to thank everyone for watching. I want to remind everyone you can go to retirement powerhour podcast.com, retirement powerhour podcast.com, and view all of our past shows. You might be watching us on YouTube. If you're not, you can go to YouTube, watch all of our past videos. If you're someone who's wondering if you can retire, again, go to retirement powerhour podcast dot com and submit a question, or you can click work with me. And that is going to start the process of the first step, is just having a phone conversation with us, and we will see what you have going on, get some information, and see if you're a candidate to retire, or maybe you're a candidate to semi-retire. So do that, retirement powerhour podcast.com. If you enjoyed this episode, we would really appreciate if you leave us a review on Spotify, on Apple, or on YouTube or Google. Thanks to Mark for joining, and thanks to everyone for listening and watching the Retirement Power Hour, where we help listeners invest wiser and retire better. Take care.
Speaker:Thank you for listening to the Retirement Power Hour Podcast. All material discussed on this podcast is for educational purposes only and should not be construed as individual tax, legal, or investment advice. Investing involves risk of loss, and investors should be prepared to bear potential losses. Past performance may not be indicative of future results. Joe Allaria is an investment advisor representative of Carson Allaria Wealth Management, a registered investment advisory firm. Information discussed on this podcast may be derived from third parties that are believed to be reliable, but Carson Allaria Wealth Management does not control or guarantee the accuracy or timeliness of such information and disclaims all liability for damages resulting from such sources. Any references to third parties are provided as a convenience and do not constitute an endorsement.