Latest / The Financial Freedom Podcast with Fexingo: Quitting Your Job, Living Off Investments, Independence / The Part-Time Job That Protects Your Early Retirement
Transcript
- Lucas: So we talk a lot on this show about how to make your money last in early retirement. The withdrawal rate, the bond tent, sequence of returns risk. But there is one variable we have barely touched, and I think it might be the most practical lever of all. Luna: Okay, I am curious. What is it? Lucas: A part-time job. Not a full-time return to the grind. I mean something small, flexible, maybe ten hours a week, that covers maybe ten to fifteen percent of your spending. That modest income dramatically changes the math of early retirement. Luna: I can see why that would help. But isn't the whole point of early retirement to not have to work at all? Lucas: It is, and I get that. But let me give you a concrete scenario. Say you retire at 45 with a $1.2 million portfolio and you plan to spend $42,000 a year. That is a 3.5 percent withdrawal rate, which is historically pretty safe. But we know sequence of returns risk — if the market tanks in your first few years, that 3.5 percent can become unsustainable. Luna: Right, we have done whole episodes on that. So how does a part-time job change it? Lucas: Let's say you earn $12,000 a year from a remote consulting gig or teaching an online course. That covers about 29 percent of your spending. Suddenly you only need to withdraw $30,000 from your portfolio instead of $42,000. That drops your withdrawal rate to 2.5 percent. That is a massive buffer. Luna: So you are effectively reducing your withdrawal rate without actually reducing your spending. Lucas: Exactly. And the best part is you only need to do it for the first five to ten years. Once you get past that danger zone of sequence risk, you can quit the gig entirely if you want. The part-time work acts as a shock absorber. Luna: I remember reading a study from Morningstar that showed that a tiny bit of part-time income in early retirement can increase the safe withdrawal rate from 3.5 percent to around 4.5 percent. That is a huge jump. Lucas: That is exactly the data I was thinking of. And it is not just about the math. There is a psychological benefit too. You stay connected to a professional community, you keep your skills fresh, and you have a sense of purpose beyond just managing your portfolio. Luna: But what kind of part-time work actually fits the early retirement lifestyle? I mean, you do not want something that is going to eat up all your freedom. Lucas: Right, you want something low-stress and flexible. Consulting in your former field is an obvious one. If you were a marketing manager, you could take on a few clients a month. Or teaching one online course per semester. Seasonal work like tax preparation — that is a few months of intense work, then you are free the rest of the year. Luna: I have also heard of people doing things like being a virtual assistant or freelance writer. Something that you can do from anywhere, on your own schedule. Lucas: Exactly. The key is that it does not feel like a grind. It should be something you enjoy or at least do not mind. Because if you hate it, you will just quit, and then you lose the buffer. So you have to be honest with yourself about what kind of work you would actually want to do. Luna: And you have to watch out for lifestyle creep. If you start earning $12,000, it is tempting to spend $15,000. Then you are not actually reducing your withdrawal rate. Lucas: That is a real risk. The whole point is to use that income to reduce your portfolio withdrawals, not to inflate your spending. You have to be disciplined. But if you can do it, the math is incredibly powerful. Luna: So for someone who is on the fence about early retirement because they are worried about running out of money, this could be the solution. You do not need to have a bulletproof portfolio. You just need a backup plan that you kind of enjoy. Lucas: Right. And it is not just for the early years. Even if you are ten years into retirement and the market has been good, a little part-time income can let you spend more without increasing risk. Or it can help you leave a larger inheritance. It is a flexible tool. Luna: What about Social Security? Does part-time income affect that? Lucas: Great question. If you are under full retirement age, earned income can reduce your Social Security benefits temporarily. But if you are in early retirement, you are likely not taking Social Security yet anyway. You are probably delaying it until 70 to get the maximum. So it is usually not an issue. Luna: And the income is also taxable, but at a lower rate since your total income is low. So the tax impact is minimal. Lucas: Exactly. You are in a low tax bracket anyway if you are living on a 3.5 percent withdrawal. Adding $12,000 of earned income might push you into a slightly higher bracket, but it is still very low. And you get the benefit of being able to contribute to a Roth IRA if you have earned income, which is a nice bonus. Luna: So the takeaway is: if you are worried about sequence risk, consider keeping a small part-time gig for the first five years. It does not have to be much. Even five thousand dollars a year can make a difference. Lucas: Exactly. And honestly, for a lot of people, the part-time work becomes something they end up keeping longer because they enjoy it. It gives structure to their week, social interaction, and a sense of contribution. It does not have to be all or nothing. Luna: You know, this reminds me of something. A lot of our listeners have told us that the practical, actionable advice on this show has helped them think about their own financial decisions more clearly. If you find value in these conversations, and you want to help us keep them coming without ads, you can support the show at buy me a coffee dot com slash fexingo. That is buy me a coffee dot com slash fexingo. Lucas: And we really appreciate that. It keeps us independent and focused on what matters. So back to the part-time job idea — one thing I want to emphasize is that you should plan what you will do before you retire. Do not wait until the market drops and you panic. Line up a consulting client or a teaching gig while you are still working. Luna: That is a great point. Have a plan in place so you can hit the ground running if you need it. Lucas: Exactly. And if you never need it, great. But having that option is like an insurance policy. It makes your retirement more resilient. Luna: Alright, so next time someone tells you that early retirement means you never work again, you can tell them that sometimes a little work makes the retirement last longer. Lucas: Could not have said it better myself. Thanks, Luna. Luna: Thanks, Lucas.