working part time, work part time, afford to work part timeWouldn’t it be great to have an extra day each week to run errands, spend time with your family, or just relax? But can you afford it?

As a mom, I have often thought that part-time work would be the perfect compromise: I would have the extra time to spend time with my kid or coordinate his activities, but still earn an income and get some professional satisfaction out of working.  I think many parents can relate.

Some of my clients approaching retirement have a similar thought. They don’t want to retire yet – or maybe even ever – but don’t want to work so hard, either.   Makes sense to me!

It’s always best to plan ahead before making a decision like the switch to part time, or simply working less if you are an entrepreneur. Here is a checklist of factors to consider:

1. How will it affect your cash flow?

Let’s say you voluntarily decide to work 4 days per week instead of 5. Your employer is okay with it, but your income is cut by 20%.  Where will that money come from?  You may decide you’d rather have the time than the money – yes, your time has value – but you still need to cover your financial bases.  It’s okay to reduce your savings, but you should always be able to save a little something.

2. What about health insurance?

If you own the business, or already have health insurance through your spouse, great!  If not, keeping your health insurance coverage is top priority.  Many employers will provide health insurance to part-time employees who work a certain number of hours.  If your employer is not one of them, consider the cost as well as how and where you will get health insurance.

3. What about other company benefits?

Many of your company benefits are based on your income.  For example, life insurance is often a multiple of your income, and disability is a percentage.  If your income goes down, those benefits do too (but hopefully you won’t be using them anyway).  You should also consider the effect on any other benefits?  Will you lose vacation or sick days?  That may be fine with you (and perfectly fair); you just don’t want any surprises.

4. Will it affect your social security benefits?

The formula used to calculate your Social Security benefits is complex, but it is based on your lifetime earnings. A formula is applied to your average monthly earnings during the 35 years in which you earned the most, to arrive at your “primary insurance amount” (PIA) which is what you would receive at your full retirement age — 65 or older, depending on your date of birth.

You get your Social Security statement and estimate your benefits at www.ssa.gov.  For many, working part time for a year is not likely to have much effect on your average earnings over 35 years.

 5.  What will you do with your “extra” time?

This is a more personal question, but be honest with yourself.  It’s especially important if the cash flow (see #1) is tight, because if “more free time” translates to “more shopping time” you could be setting yourself up for trouble.

If you are thinking about cutting back to work part time, be prepared!  I recommend you do your own research (break out that HR manual) and having a plan for what and for how long you want to do before going to your employer!

All that being said, I think many of us work too hard and part-time can be a great solution.  Good luck!