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Have you ever dreamt of a life where work is optional, and your time is your own? Imagine waking up on a Monday morning and deciding to take a hike, hit the beach or spend the day with a good book instead of trudging to the office or logging in online.
It might sound like a fantasy, but achieving a work-optional lifestyle by your 50s is within your reach, especially for independent women and female-headed households who plan ahead. Here’s how you can make it happen.
Start with a Vision for What Work Optional Means for You
First things first, let's dream big! What does a work-optional lifestyle look like for you? Is it fully stopping work, or is it doing something you’ve always felt passionate about, like coaching or consulting others in your industry that would offer more flexibility?
Would you want more free time to travel, explore your hobbies and to see your family and friends? Paint a clear picture of your ideal life. This vision will be your north star, guiding every financial and lifestyle decision you make from here on out.
Keep this vision somewhere visible to remind yourself that you're working hard now to have more freedom later.
Get Smart About Your Money to Make Work Optional
Follow these steps with your money to create smart habits that will aid you in reaching your goal to make work optional.
Build an Emergency Fund
Save six- to 12-months of living expenses (not income). This safety net is crucial for weathering the inevitable financial storms that will come your way. Keep this fund in a high-yield savings account where it's easily accessible but still earning some interest. Bankrate.com shows the most competitive interest rates each month.
Budget Like a Boss (Without an Actual Budget)
You don’t have to know where every dollar is going. Instead, get in the habit of regularly reviewing your high-level spending to identify big areas where you can make reductions without sacrificing too much. There are numerous budgeting apps available that can help you quickly identify patterns that you can change in your spending. My favorite budgeting app (me and my hubby use it) is Monarch Money.
Create a Reverse Budget and Save Aggressively
This “budgeting” concept starts with saving and ends with spending only what’s left. The best way to do this is to automate your savings through payroll deductions to a 401(k) and/or IRA accounts and setting up monthly transfers to high-yield savings and taxable investment accounts. Moving some of your paycheck as soon as you're paid makes it easier to "forget" that money and spend only what's in your checking account. To make work optional, you should aim to ramp up your savings to 20% of your income. If that seems daunting, start small and incrementally but consistently work your way up.
Invest Wisely (and Consider Getting Help)
Start Early: The earlier you start investing, the more time your money has to compound and grow. Thanks to the magic of compound interest, even small amounts can become significant over time. Take a look at the U.S. Securities and Exchange Commission’s (SEC) compound interest calculator to see this concept in action and motivate yourself to invest more.
Diversify: Don’t put all your eggs in one basket. Spread your investments across different asset classes like large cap growth, large cap value and small cap domestic stocks, international developed and emerging market stocks, bonds, real estate and alternatives to reduce your risk. Diversification can help buffer your portfolio from market volatility because it's less likely that a negative event will affect all of your holdings when they're spread among different types of assets and companies. And that means more money to compound over time.
Consider Professional Advice: If you're not confident about investing, seek advice from a financial advisor. Look for someone who has your best interests at heart, ideally a fiduciary, fee-only advisor. This means they don't make money on commissions or kick-backs. A good advisor can help you create a personalized investment strategy that's based on your goals, timeline and comfort with risk. Most importantly, they can keep you on track when the going gets tough with the market or other life changes.
Consistently Maximize Your Income
Negotiate: Don’t be afraid to ask for what you’re worth. Whether it’s a raise, a promotion, or better benefits, negotiation is the key to maximizing your income. Before negotiating, research the market rate for your position and come prepared with evidence of your contributions and achievements.
Side Hustle: Consider starting a side hustle. Whether it’s consulting, freelancing, selling crafts, or tutoring, a side hustle can provide extra income and potentially grow into a full-time business. Choose something you're passionate about so it feels less like work and more like a hobby. The best part is you can manage the time that you work in order to spend blocks of time doing what you love.
Invest in Yourself: Further your education, learn new skills, and network with others. These investments in yourself can all lead to better job opportunities and higher pay. Look for online courses and workshops, and join professional and career-adjacent associations in your field.
Practice Living Below Your Means Before Making Work Optional
Follow these steps before you downsize your career or stop working to make sure you are able maintain a comfortable lifestyle.
Smart Spending
Focus on buying quality over quantity and prioritize experiences over things. This doesn’t mean depriving yourself but being mindful about your spending. For example, cooking at home instead of dining out can save money and help you live a healthier lifestyle. Another good tip to rein in online spending is to wait a day or more before checking out of your cart. I do this all the time. Nine times out of ten I end up removing items from my cart because the sense of urgency has passed.
Consumer Debt-Free Living
Pay off your high-interest debts like credit cards and loans before you make work optional. Avoid taking on new debt unless it’s for an investment that will appreciate over time, like real estate or a new business idea. Consider using the debt avalanche or snowball method, where you focus on paying off debts with either the highest interest rate or highest balance first. Both methods have their pros and cons, so just pick the one that you think will motivate you the most.
Plan to Make Work Optional Following Tried and True Retirement Strategies
Make the Max Contribution to Your Retirement Accounts
Make the most of your retirement savings by maximizing contributions to accounts such as 401(k)s (up to $23,000 in 2024) and IRAs (up to $7,000). And don't miss out on employer matches – it's essentially free money! For those who are self-employed, exploring options like a SEP IRA (25% of your compensation up to $69,000) or a Solo 401(k) (up to $69,000) can provide higher contribution limits along with tax deferment benefits.
Take Advantage of Catch-Up Contributions
Once you hit age 50, you can make catch-up contributions to your retirement accounts to turbocharge your savings. For 2024, the catch-up contribution limit for a 401(k) is an additional $7,500 and for IRAs it's $1,000.
Consider a Health Savings Account to Cover Healthcare Expenses Before Medicare
Consider how you’ll cover your future healthcare costs and other expenses before you start Medicare at age 65. Look into Health Savings Accounts (HSAs) if you have a high-deductible health plan through your employer. You can take payroll deductions and pay your medical costs out of pocket to let the account balance grow. Then you can use the HSA money you saved to pay your higher premiums and other healthcare costs when you leave a job with an employer-provided health insurance plan. A little known tip if you leave your corporate job with a good healthcare plan is to go on COBRA and pay the premiums with your HSA money.
Create Multiple Streams of Income to Supplement Your Work Optional Lifestyle
Passive Income
Investigate how to generate passive income through investments in stocks, real estate or by starting an online business. Passive income can help you maintain your lifestyle without actively working. Consider dividend-paying stocks or real estate investment trusts (REITs) for steady income.
Rental Properties
If you’re comfortable with the idea, research how investing in rental properties can provide a steady income stream and appreciate over time. Be sure to thoroughly research the market, learn how to analyze a property’s potential profitability and understand the responsibilities of becoming a landlord.
Consider Consulting or Coaching
Use your industry expertise to help organizations and workers get ahead. Many companies are interested in hiring consultants to optimize their business without paying a full-time salary and benefits. Many employees who are interested in getting ahead can benefit from a coaching engagement with someone with experience who has “been there, done that.”
Prioritize Staying Healthy as Part of Your Work Optional Plan
Wellness is Wealth
Your health is your greatest asset. Invest in a healthy lifestyle – eat well, exercise, and get regular health screenings and check-ups. Staying healthy can reduce medical expenses and keep you active and vibrant in your later years. Consider preventative care and holistic wellness practices as part of your routine.
Establish a Support Network to Achieve a Work Optional Lifestyle
Community Support
Surround yourself with supportive friends and family who can buy-in to your idea for making work optional. Join communities of like-minded women who share your goals and can offer ideas for reaching this goal. You’ll find motivation, advice, and maybe even some fun along the way. Look for local groups or online forums where you can share your experiences and learn from others.
Professional Network
Maintain a strong professional network in personal through networking groups and online through LinkedIn. You never know when an opportunity might come your way from a former colleague or a new contact who knows what you’re trying to achieve. Attend industry events, join LinkedIn groups, follow others who have become coaches and consultants and stay connected with your mentors.
Develop a Drawdown Strategy to Maintain a Work Optional Lifestyle
The strategies below for how to spend your savings once work becomes optional aren't one-size-fits-all. Each is just a general guideline to consider.
The 4% Rule
One popular strategy is the 4% rule, which suggests you can withdraw 4% of your retirement savings annually, adjusted for inflation, without running out of money. For example, if you have $1 million saved, you could withdraw $40,000 the first year. Note that this rule doesn’t account for the higher spending that’s likely required in the earlier years of a work optional lifestyle because of higher healthcare costs from private insurance coverage, not starting Social Security at your full retirement age and other factors.
Bucket Allocation Strategy
Divide your retirement savings into different “buckets” based on when you’ll need the money. For example, your short-term needs should be maintained in cash or short-term bonds to avoid taking withdrawals during a down market, while your mid- to long-term needs can remain in income-producing and growth-oriented investments like corporate bonds, dividend-paying stocks and growth investments like stocks and alternatives.
Dynamic Withdrawals
Commit to being flexible with your withdrawals. In years when your investments perform well, you might withdraw a bit more. In leaner years, you can tighten your belt to help preserve your nest egg. Discipline here is key and something that may need to be adjusted each year.
Social Security
Make a strategic decision on when to start receiving Social Security benefits. By waiting until age 70, you can substantially boost your monthly payment compared to starting at 67, as your monthly benefit grows by eight percent annually after reaching full retirement age. Consider this choice as part of your broader financial plan, taking into account factors like your spouse's employment status, any additional income sources, and more.
Annuities
Take into account the possibility of utilizing an annuity. Annuities offer a consistent income stream throughout your life, which could be a valuable addition to your retirement income strategy if you intend to reduce your workload in your 50s, especially considering the potential need for income spanning over 35 years. These products are intricate and demand thorough investigation. Make sure you thoroughly understand the contract, paying special attention to fees and surrender charges before making a decision.
A Final Word
Keep in mind, achieving a work-optional lifestyle is a marathon, not a quick race. Acknowledge your achievements as you progress along the way to find joy in the journey. By staying committed, planning wisely, and being brave, you can achieve a work-optional lifestyle by the time you reach your 50s. Cheers to your upcoming freedom and fabulousness!
Want to get your plan started? Download my free checklist below!
For more tips like these, download my free ebook series that covers debt management, growing your income to save more, investing wisely and retirement planning. To learn what it's like to work with a financial advisor, you can book a free call with Life Story Financial.
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