I’m Only 42 And With The Market On A Tear My Portfolio Is Up To $3 Million. Can I Start Working Part Time?

When the stock market performs well, your nest egg can grow very quickly.

If you are 42 years old and already have $3 million in your accounts thanks to your investments doing well, then you are in a great position to build financial security. This does not necessarily mean you should start working part-time though. Whether you should cut back on your hours or not is going to depend on many factors, including how much money you need to live on as a retiree and what the long-term financial implications of semi-retirement are for you

Here’s what you need to consider before switching to part-time work 

Before you make the change to part-time work, you need to think about what that will mean for your long-term savings plan. Specifically, will you need to start relying on your savings now if you go part time, and how will that affect your future? 

If you can switch to part-time work, cover all of your expenses, and leave your $3 million to grow, you can most likely go ahead and make the change. Thanks to the power of compound growth, your $3 million investment will keep getting bigger pretty quickly even if you can’t afford to add to it because you are only working part time.

In 10 years when you hit age 52, for example, the $3 million you currently have invested would be worth around $7.78 million. That’s true even if you never put another dollar into your accounts. At a safe 3.7% withdrawal rate, a $7.78 million nest egg would provide you with an annual income of around $287,860, which is probably more than enough for you to live on unless you have very high spending needs. 

However, if you are planning on switching to part-time work and doing so will require you to draw down your investment account, then you may not be in such great shape. Your current $3 million would only be able to provide you with around $111,000 in income — which may be enough when combined with your part-time work, but not necessarily.

Since you are young yet, you also have to remember that you would be stuck with this lower income for many years — especially since you won’t see your savings growing like in the other scenario where the $3 million turns into much more since you’ll be taking money out over time. While the $110K may be fine now while working part-time, this will mean you have less money later when you are ready to quit for good.

Is $3 million enough for financial independence

The reality is that while $3 million is a lot of money, it’s not necessarily a ton of cash in the context of a retirement that could last 60 years or so. Trying to live off $3 million for a very long time could set you up for unnecessary financial stress — especially given that inflation will reduce the buying power of your funds over time. Living on $111K right now might be pretty luxurious, for example, you would need a lot more than that 30 years from now to maintain the same standard of living.

Switching to part-time work at a young age, or retiring early, also brings other complications as well. For example, you may lose access to employer-provided health insurance if you are not working full-time hours.  This could mean you get stuck paying costly COBRA coverage. If you don’t have 35 years of high earnings, you’ll also reduce your Social Security benefit which is based on average wages in the 35 years you earned the most.

Thinking about all of these issues is really important, so you should make certain that you consider all the financial details before you switch to part-time work. A financial advisor can help you to evaluate your financial situation to determine if making this move is ultimately the best choice for you. 

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