My Mini-Retirement Recipe: Ignore Your 401(k), Skip That Promotion, and Stir To Combine Well
How your skills and your savings set you up for a mid-career break.
“Your past success affords you the privilege of choice today.” -from Jillian Johnsrud’s Retire Often Podcast.
Plus, some unconventional advice that will surely get you thinking…
The recipe for a successful mini-retirement hinges on two key ingredients. Photo by Jimmy Dean on Unsplash
You’re ready to take an extended break from work…your first mini-retirement. Or maybe you've decided to live a semi-retired lifestyle. That’s great! Congratulations on thinking differently as you pursue your best, balanced life.
Here’s the bad news. Because what you’re doing is so rare, there is little information on what to have in place to do it well. Traditional retirement planning certainly doesn’t teach it. Career coaching won’t help.
Conventional wisdom focuses on job promotion and titles, increased pay, and saving into retirement accounts to access at retirement age. That won’t work for what you want to do.
To prepare for a mini-retirement, your goal at work should be professional skill development. And you need to draw on your savings sooner and more frequently. You’re learning how to “cash out regularly rather than bank constantly.” -Retire Often podcast
It’s a paradigm shift. The approach departs from the more typical deferred life plan, where you work continuously for decades. Mini-retirements and semi-retired living prioritize experiences and work-life balance much earlier in life.
This post investigates the ingredients necessary for a successful mini-retirement. The good news? There are only two things to get right: valuable skills and enough savings. Then stir to combine well using the perfect recipe, and sink your teeth into your most delicious life.
Did I take the metaphor too far? Probably did…
Let’s look at how to adapt our work and savings to serve us in this new and different lifestyle.
As you read, keep in mind that I promote independent consulting as the profession that best enables a semi-retired lifestyle. But even the non-consultant can benefit.
Don’t go for that promotion
You want valuable skills.
How do you take control of your work life (not the other way around)? It’s all about skill-building. In his book, So Good They Can’t Ignore You, Cal Newport links skill development to professional success and personal satisfaction at work. Your clients will pay for these highly valuable skills.
Promotions and team size bring external validation. How high can you go, and how large an org can you build? The downside: you’re forced to spend time navigating corporate politics and HR processes. Some of us enjoy this game, but I don’t. It makes me uncomfortable.
Skip that promotion unless it teaches any one of four key skills.
Any client-valuable skills
What do you do better than anyone else that your client must have access to? These skills typically:
Help get things done, e.g. program leadership
Bring your expertise to bear, e.g. deep technical knowledge
With these skills, you’re so good they can’t ignore you. How do you get good? You do one thing…a lot. Comedians tell jokes to audiences hundreds of times to find the right delivery to get the most laughs. Your expertise won’t get you laughs (unless that’s what you’re going for). But it will get you paid, sometimes handsomely.
Consulting skills
I came up through Big Four consulting and, at first, didn’t realize consulting skills were a thing. It only became clear after I went independent and worked among client teams. Consulting skills are very real and nuanced, for example:
Servant leadership combined with authority
Quick study smarts combined with humility
Deep knowledge with the ability to make connections given a breadth of experience
Sales skills and an established network
Consulting sales is about problem-solving. It’s not about high-pressure tactics. It’s not software sales (one area where I’ve failed). Instead, look to continually add value to your network and ask how you can serve. That’s how to sell a consulting engagement.
Business ownership skills
Starting an independent- or micro-consulting business is not difficult. Find a good attorney, CPA, and business coach, and you’re on your way. You can ignore much of the flashy, high-tech start-up activities, e.g. VC funding pitches.
How do you build these four key skills?
The trick is to do it through your employer. Get paid to learn them. Find employment that promotes skill development even if it’s not your highest-paid offer. Then, when the opportunity for further growth runs dry, move on to another job. Eventually, you’re ready to go out on your own.
Photo credit Point B, Inc.
I started consulting as a young twenty-something at Accenture. Here I learned my client-valuable skill: project management. But it was my next stop, Point B Inc., where I made huge leaps. I developed true consulting skills and sales and networking skills. I built a strong client network through my work at Point B. And I hold the same strong relationships to this day.
I even gained start-up skills as the third hire in our San Francisco practice. And the company culture matched me to a tee, so much so that I’ve replicated it in my own micro-consultancy. If something works, don’t change it. Do it, do it, and do it again. With that comes perfection.
Stop investing in your 401(k)
You want “enough” savings.
What is enough? This is difficult for many. Let me give you some guidance.
To fund a semi-retired lifestyle, you need more than a 3–6 month emergency fund. And you need (much) less than a $5 million retirement portfolio stashed away in your 401(k) and IRAs.
Enough is in between.
In a perfect scenario, you’ve invested these savings in a combination of financial assets you can access at any age.
And the investments have to work for you. They should grow and also be safe. You’re hearing me correctly. I recommend investing in a manner that nets you high returns and low risk. It exists!
Here are three considerations to help you define your enough. Tackle the three in order.
Total savings
How much? Target 50%. Your goal: cover 50% of your living expenses with savings. Let’s assume you live on $200,000 per year. Using the 4% rule, you need savings equal to 25 times $100,000 or $2.5 million. If you have this saved, great. If not, you have two options:
Cover more than 50% of living expenses with consulting.
Reduce your living expenses using a value-based spending method like the No Budget Budget. How much you must save will drop significantly.
Earlier in your career, the best way to grow savings is by increasing your savings rate. Later, it’s by increasing your investment return.
Access to savings
Once you have savings, make sure you can get at it! Ideally, you have some savings outside of retirement accounts. It’s more difficult to access retirement accounts early (though not impossible).
To shift your savings:
Start saving to non-retirement accounts immediately. Often, you’ll accomplish this by no longer funding your 401(k). Blasphemy, I know!
Or, if you have retirement savings, move them to a taxable account. One tactic to consider: Do a Roth IRA conversion in a calendar year with low personal earnings. You won’t take as big a tax hit.
Protection against big losses
Caution! This is often missed. And it requires a shift in how we look at risk. As mid-career professionals, we operate in a world of wealth accumulation. We save-save-save, usually with stocks or stock funds. We can ride out downturns (like I did from 2007 to 2009) because we have plenty of time before traditional retirement. When retirement is 10 or 20 years away, we can handle large market swings.
But when living off your savings (even somewhat), you can’t handle big losses. You can’t wait “10 years or longer” for a stock fund to recover, as noted by Vanguard. You need that money to live on!
Photo credit The Vanguard Group, Inc.
To address this, I recommend two methods:
Maintain a savings safety net. This works well, especially when money market funds are earning 5%+ returns. Withdrawing from safe accounts when stock markets are down gives me peace of mind.
Learn a new investment process that protects you against big losses. As a (former) long-time buy and holder, I admit this was hard for me to hear. I urge you to stay open-minded.
Let me touch on that investing process. Here is my savings story.
I saved for retirement since my early twenties. But not until 2017 did I start building my taxable savings. To do it, I stopped funding retirement accounts, increased my savings rate, and converted home equity to cash. Now, I maintain a savings safety net for downturns.
I also invest using a Tactical Asset Allocation (TAA) process with Allocate Smartly and have for 2 1/2 years. With TAA, my investments grow while staying protected against huge losses. I sleep better at night because I know I can safely withdraw money to live on. And I won’t deplete my savings.
If any of this is interesting to you, let’s talk. I can answer any questions you have. You can find a good time here.
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Brian Herriot cooks up his semi-retired lifestyle from his home in Alameda, California, and cabin in Hazelhurst, Wisconsin. He also prepares financial freedom plans for consultants and other mid-career professionals in one-week sprints. Check out his take on a new and different kind of retirement at choosyconsultant.com.