8 Investments for Semi-Retirement: Index Funds, Real Estate

Updated for 2024! Having a successful semi-retirement depends on managing your money well. If you put your money away in reliable investment vehicles, you can grow your wealth while you enjoy your semi-retired lifestyle. With that said, you must be aware of the larger economic situation and how that impacts investing. The post-Covid era has seen the rise of inflation and higher interest rates, and these conditions have opened up new investment and savings options. To help you, we’ve updated this article to include 4 new semi-retirement investments for the post-Covid, high-interest rate era. 

You want freedom…the freedom to spend time with friends and family, enjoy new experiences, and chase your dreams. You want to do the things that matter.

That’s why you’ve chosen to semi-retire. 

Though semi-retirement isn’t a full dive into the FIRE lifestyle, it does have similar advantages. You can travel the world and wake up at 11am. Doesn’t that sound nice?

The only thing is: You must watch your money carefully.

In short, you don’t want to fall into a financial trap. Because that means having to go back to the 9-5 grind. Oh no!

So, what’s the solution? It’s simple really. Before you semi-retired, you probably accumulated savings. You need to put that money to work, especially if your semi-retirement job keeps you cash-flow positive. That’s how you continue to live the good life.

Enter investments for semi-retirement—your way for money to make money.

Disclaimer: This article is intended for informational purposes only. Please DO NOT consider any content as investment, financial, legal, tax, or other advice. With any investment, past performance does NOT guarantee a certain future performance. Seek advice from an independent financial advisor before making any investment decisions. 

1. Index Funds and Exchange-Traded Funds (ETFs)

While Apple, Amazon, Facebook, and others have been great investments, buying at the wrong price means you won’t get the returns you could. You also won’t be able to diversify as much as experts advise.

Simply put, handpicking stocks and timing the market can get difficult and time-consuming. And you still may not achieve your goals.

Want to simplify your investments for semi-retirement?

Index funds can do that for you. As Vanguard, one of the world’s largest investment companies notes, index funds track the performance of a specific market benchmark. It’s a passive investment strategy that offers diversification, low costs, and tax efficiency. You can invest in stock indexes through a mutual fund that follows that index.

For example, you could invest in a mutual fund that follows the S&P 500—a stock market index that measures the performance of the 500 largest companies on US stock exchanges. Since 1928, the S&P 500 has delivered average annual returns of 9.8%. That’s solid, right?

One of the greatest investors of all time, Warren Buffett, champions index funds as the investment that “makes the most sense practically all the time.” Buffett famously made a $1 million bet with an asset manager that an S&P 500 index fund would beat his fund, and won.

Exchange-traded funds, or ETFs, offer a similar approach to index funds (diversification, low costs, tax efficiency). They differ in that ETFs are baskets of securities while index funds are pooled investment vehicles that represent a segment of the market.

Additionally, ETFs may suit you if you want to more actively manage your investment. Managed by money managers, index funds are priced at the end of the day (and can only be bought and sold at that price). You can trade ETFs like stocks, meaning you can buy and sell throughout the trading period.

2. High-Yield Dividend Stocks

Note: You can choose ETFs or index funds focused on high-yield dividend stocks. That would make less work for you. 

Companies with higher-than-average dividend yields have moved beyond the high-growth stage. They’ve matured and don’t have the same volatility that growth stocks do. These companies can afford to distribute profits to shareholders instead of reinvesting that money back in the business (like companies in the growth stage do).

So, what advantages do dividend stocks offer as investments for semi-retirement?

The first is cash flow

Picture this: You retire with $400k in savings. You invest that money in a variety of high-yield dividend stocks, such as AT&T, Nielsen, CenturyLink, and Chevron. Your portfolio’s dividends average a yield of 6%. That means you’ll have $24,000 in income each year. You could use that money to fund your FIRE lifestyle.

The second is stability

When you look at investments for semi-retirement, you want to protect your nest egg. Depending on your risk tolerance, you may not want to endure a sharp decline during a market downturn. As experts note, many dividend stocks are less volatile and will hold up better than others during recessions. Also, as an article in Merrill Lynch notes, dividend-paying stocks offer the chance to make an income, regardless of market conditions. They allow you to weather the storm, without having to sell low to get cash.

3. Real Estate and Real Estate Investment Trusts (REITs)

Real estate may mint more millionaires than any other investment. That’s why many today’s rich have considerable assets in real estate, from Li Ka-Shing, a Hong Kong tycoon, to Barbara Corcoran, an American businesswoman and Shark Tank judge.

So, how do you invest in real estate while in semi-retirement?

Well, you can be a passive or active investor. The choice depends on your plans.

Why you may want to be an active real estate investor

Let’s say you plan to stay in your hometown and retire with $400k. And you’ll still work at a local park or library to pay for living expenses. So, you decide you want more control over your investment. You can play the landlord!

You look around town. You decide to invest that $400k in a multi-family property and rent it. Each month, you get cash flow from rent. That money can be used for other retirement investments, buying more properties, or paying for living expenses. It’s entirely up to your needs and goals.

Additionally, that property offers the benefit of appreciation. If you buy a home for $400k and it appreciates at an average of 4% per year, it will be worth $592,092 after 10 years. That’s awesome!

Why you may want to be a passive real estate investor

Let’s say you plan to become a digital nomad. As you travel the world, you’ll work a little to support yourself. You have savings you’d like to invest, but you don’t have time to manage it.

Enter passive real estate investments for semi-retirement.

Here, a real estate investment trust (REIT) may suit you. A REIT is a company that owns and/or finances commercial and residential real estate. Some of the best REITs have yielded average annual returns of 8%+ for investors in recent years.

4. Roth IRA

Perhaps you already have a retirement plan through your previous employer (401K, 403(b), 457(b), federal pension, etc). Leave those accounts be until you reach full retirement age, unless it’s a pension you can withdraw now.

While you may not be able to continue contributing to that plan, you can still save for full retirement. An increasingly popular investment for retirement is a Roth IRA. Many even say it’s one of the best investments for millennials. Here’s why:

• Tax benefits: You pay taxes first. All savings into a Roth IRA have already been taxed. That means they can’t be taxed upon withdrawal. That’s tax-free income in retirement! The tax benefits are why experts say it’s one of the best investments for millennials. They can pay taxes early and let that money grow for decades.
• Flexibility: If needed, you can take out contributions to fund your semi-retirement lifestyle—that’s a good safety cushion to have. Note, there is a penalty for withdrawing earnings before age 59.5.

So, when does a Roth IRA make sense?

Ideally, you put money in a Roth IRA because you have enough income and savings to fund your semi-retirement. That means you can let that nest egg grow tax-free, which makes it a popular early retirement investment. It can serve as a bridge from semi-retirement to full retirement.

Even better, if you earn income off of other investments for retirement, like those listed above, you can invest that money into your Roth IRA.

Keep in mind that Roth IRA contributions have limits: $6,000 per year if you’re under 50; $7,000 per year if you’re 50 or older. Be sure to understand all of the ins and outs if you think this route makes sense for when looking at investments for semi-retirement goals!

5. High-Yield Savings Accounts

The Federal Reserve increased interest rates 11 times from March 2022 to July 2023, thereby increasing the cost to borrow money. While this development is tough for borrowers, such as home buyers in need of a mortgage, it’s a good development for savers.

Here’s why: Banks and credit unions now pay you more interest to hold your money.

As a December 2023 article in CNBC shows, there are now many institutions paying more than 5%. That means you’ll earn $25,000 per year on $500,000 of savings. Such earnings were unheard of during the 2010s (a low-interest era).

In comparison to other investment options, such as Roth IRAs and REITs, high-yield savings accounts offer several notable advantages:

• Risk-free earnings: Your deposits are insured by the Federal Deposit Insurance Corporation (FDIC). This means you can’t lose your money, as the federal government insures it. Keep in mind that the amount insured per account is $250,000. If you have more savings than $250,000, open more than one account.
• Flexible access: You don’t have to wait until retirement to touch the money. You can withdraw at any time. Your funds are available 24/7 and you don’t have to sell anything. If interest rates drop, you can easily move the savings to another investment, such as an index fund.
• No need to time the market: Many people struggle to time the market with stocks and index funds, which means they leave money on the table if they sell low. With high-yield savings accounts, you don’t have to worry about timing the market. Earnings are what’s stated by the bank, and though that may change, you’ll be notified.

As you can see, given the current macroeconomic conditions, high-yield savings accounts are a solid semi-retirement investment option.

6. Bond Index Funds

When corporations or governments want to raise money, they can issue bonds. A bond is a type of debt instrument, not a stock. As Vanguard notes, you’re essentially loaning the government or a company money when you buy one of their bonds. The idea is that you get paid back, with interest, over time.

A bond index fund is a great way to invest in bonds, as it’s a diversified portfolio of bonds — and not exposed too much to one country or company. Bond index funds aim to match the performance of the bond securities in that index, and typically have low fees and minimal risk.

After all, many bond indexes hold U.S. Treasury Bonds and bonds in major corporations. Typically, you can rely on the federal government and large corporations to make payments on time and in full. This makes bond index funds among the safest semi-retirement investments out there.

SmartAsset highlights some key advantages of bond index funds over other investments, notably:

• Diversification: Most bond index funds, such as the Fidelity U.S. Bond Index Fund and Northern Bond Index Fund, offer exposure across many sectors, helping to limit volatility and ensure your investment stays afloat if one sector or company struggles.
• Low fees: Bond index funds are considered passive investment, meaning money managers don’t need to actively manage them. This ensures low fees (which do add up with other types of investments).
• Cash flow: Most bond index funds pay on a monthly basis, providing cash flow that you just don’t get with stock investments.
• Safety: Bond index funds tend to deliver reliable payments and have low volatility, allowing you to plan financially and eliminate uncertainty during your semi-retirement.

7. Health Savings Accounts (HSA)

Do you have a high deductible healthcare plan with your employer? If so, you’re eligible to contribute to a Health Savings Account (HSA).For the year 2024, the HSA contribution limit is $4,150 for individuals and $8,300 for families.

Now, you may be wondering: Aren’t these accounts just for healthcare expenses? How is it an investment for semi-retirement?

Yes, HSAs are primarily used for medical expenses. But these accounts can also be an incredible investment vehicle for semi-retirement.

As Fidelity states, HSAs offer a triple tax advantage:

• The money contributed from your paycheck is NOT taxed. This lowers your taxable income too.
• HSAs allow you to invest the money in ETFs and stock index funds. Your investment grows tax-free, meaning you don’t have to pay taxes on investment growth (as long as you use the money for medical expenses later)!
• Withdrawals are tax-free when used for medical expenses.

To understand the power of HSAs, consider this example:

• You contribute the family max of $8,300 for 15 years. That’s $124,500 of income you don’t pay taxes on. Depending on where you live, that’s saving you at least near $20,000 in taxes. 
• If you invest that money in one of the ETF or index funds offered by your HSA custodian, earning a 10% return, you can end up with about $275,000 in your account after 15 years. That sets you up to handle medical bills for a long time!

Considering healthcare expenses take up a major portion of the budget as we grow older, using an HSA as a semi-retirement investment makes sense. The tax benefits and flexibility to invest simply make it too good of an option.

8. Solo 401K

If you’re self-employed or do freelance work, and have no employees, you’re eligible to open a Solo 401K. A couple with a business also qualifies for this type of semi-retirement investment.

Also known as an independent retirement plan, a solo 401K is attractive for several reasons. Here’s why any sole proprietor should use it.

Solo 401Ks have high limits

The limit is $69,000 per year for 2024 ($76,500 for those 50 and older). Understand how this works before you stash that amount in a 401K though:

• Since you’re both employer and employee, you can contribute as both. The employee limit for 2024 is actually $23,000 per year; the employer limit is 25% of your compensation (up to the total limit of $69,000)

Considering the tax advantages of retirement accounts, a solo 401K is undoubtedly the best semi-retirement investment option for self-employed folks with high savings levels.

Traditional and Roth options

Crunch the numbers to see what makes the most sense.

• A traditional 401K involves contributing pre-tax dollars. Considering the high limits, you could lower your current taxable income tremendously. However, you will be taxed upon withdrawal later in life.
• A Roth 401K involves contributing post-tax dollars. The advantage here is that you’ve paid the tax upfront. Any earnings and growth from your investments are tax-free, and you can make withdrawals later without paying taxes.

Simplicity & Convenience

Solo 401Ks are easy to set up with most major online brokers. You just need to provide an employer identification number (EIN). The broker will then have you complete a plan adoption agreement and account application. After that, contributing and monitoring your account is as easy as online banking.

Taking care of your nest egg in semi-retirement

Albert Einstein once said, “Compound interest is the eighth wonder of the world. He who understands it, earns it. He who doesn’t, pays it.”

You want to listen to Einstein, right?

The point is this: Put your money to work. With the right strategy, you can semi-retire or retire with $200k, $400k, or whatever other number.

For example, let’s say you retire with $400k but still work part-time to fund your lifestyle (doing something you love, of course). You invest that money in a growth-oriented mutual fund with an asset management company. The fund invests in blue-chip stocks. And you earn an average annual return of 10% over 15 years. After 15 years, you’ll have $1,670,889!

That’s nice, right?

Anyway, we hope the information on investments for semi-retirement has helped. Before investing, educate yourself and talk with a financial advisor. Choose the investments that suit your needs and goals. And you’ll be off to a good life in semi-retirement.

Want to read more? Check out our guide for the 10 best semi-retirement jobs!

Disclaimer: This article is intended for informational purposes only. Please DO NOT consider any content as investment, financial, legal, tax, or other advice. With any investment, past performance does not guarantee a certain future performance. Seek advice from an independent financial advisor before making any investment decisions. 

About the Author

Nick Callos has always had a passion for reading, writing, and discovering the new and unknown. Originally from Cincinnati, Ohio, Nick holds a Bachelor’s Degree in English from Boston College. He currently splits his time between his hometown, Chengdu, China, and the open road. A full-time travel writer, Nick hopes his work can inspire others to explore the world more deeply and enjoy the digital nomad lifestyle.

Featured image via Pixabay.