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My latest MoneySense Retired Money column looks at a concept called “The Glidepath” approach to semi-retirement. Click on the highlighted text for the full version, which is headlined How to Transition Into Retirement.
The “Glide Path” is a term used by veteran and now semi-retired financial advisor Warren Baldwin. At 66, Baldwin still works part-time as a senior vice president T.E. Wealth, working out of Oakville, Ont.
When used in the context of airplanes and flight, glide path is a familiar image that Baldwin’s clients easily understand. His own “glide path” to semi-retirement began three and a half years ago. “Maybe it takes five years because it takes two years to plan and get your mind around it. For me, it was coming up three years ago, when I was 63. The timing was right.”
The “Work Optional” stage of life
Another way to describe this is the “Work Optional” stage of life, a term popularized by Emeritus Retirement Solutions’ Doug Dahmer, who is a frequent contributor to the Hub’s “Decumulation” pages. See for example, this post.
See also a recent two-part review of Victory Lap Retirement by NestWealth.com’s Kate Smalley that also focuses on this “Work Optional” theme: Work while you play, play while you work: the case for Semi-Retirement. Or my Hub blog talking about the same review: The Work Optional Stage: Work because you WANT to, not because you HAVE TO.
Those who have access to Victory Lap Retirement (co-authored with Mike Dark) might want to look at page 144, which describes the four-hour workday. Believe it or not, the four-hour day can be used even by full-time workers, as long as they put in two solid hours of work (creative, billable, sales etc.: whatever your employer is actually paying you for) in the morning and two more in the afternoon. That amounts to ten two-hour sessions per week if you’re still full-time but my vision of Semi-Retirement is to cut that back: so maybe you have only a single two-hour session Fridays, for example. If you worked only two hours a day every business day, that would amount to working “half time,” even under the 4-hour a day paradigm.
Phased Retirement
The Glide Path idea dovetails with a formal concept called Phased Retirement: Some employers allow workers to go down to a 4-day or even 3-day workweek, with corresponding cuts in gross pay of 20% or 40%, sometimes while also collecting pension income to make up the difference.
In the absence of a pension, the impact on net pay of working less may be muted because of how our marginal income tax system works. As I like to say, if you consider Mondays to be almost tax free because of the Basic Personal Amount that constitutes a “tax free zone,” then you can view Fridays as the highest taxed day of the week. Fridays tend to result in more income taxed at your top marginal rate, like bonus income. So when you cut back your workweek by 20% or 40%, in essence Ottawa shares the pain of your receiving lower earned income.
Or as Baldwin puts it in the article: “If you were making $200,000 a year and give up earning the last $50,000, you’re really just giving up $25,000: the government loses the other $25,000 you would have paid in income tax at the top marginal rate.”
Balancing Stress and Boredom
Meanwhile, you have gained 100% of the time you would have lost Fridays working: you’re giving up 50% dollars for precious 100% time, although Baldwin cautions that if you end up playing golf or other costly activities on those freed-up days, you may end up spending more money than you anticipated.
All in all, though, the Glide Path makes sense. As we argue in the book, it makes little sense to go instantly from 100% “Work” mode to 100% “Play mode.” I understand the desire to work less if you’ve been in the corporate grind three or four decades, and reducing your stress may seem to be a paramount need. On the other hand, plunging suddenly into what amounts to a permanent vacation carries a stress of its own: Boredom and filling up all that time.
To me, the gradual “Glide Path” approach makes a lot of sense. And unlike a real glider, if you decide you want to restart the engine and resume full-time work after experiencing a few months of “gliding,” you’ll always have that option.
