Have you ever considered taking a sabbatical from work? If you did take one, would it ruin your career and financial goals? Most companies in the United States don’t offer paid sabbaticals like some in Europe, so doing so would require extensive planning. Jake Northrup at Kitces.com recently wrote an article that could help financial planners and DIYers plan how to take a sabbatical without destroying their financial future.
If taking a mini-retirement appeals to you, make sure to listen in to hear how it could affect your financial goals. You’ll also discover loads of resources that could help you make the most of your financial planning for such an endeavor. Make sure to stick around until the end of the episode to hear my response to whether I think Social Security is doomed.
Outline of This Episode
- [2:22] The idea of traditional retirement is being challenged
- [6:02] An example of how one couple planned their sabbatical
- [9:20] How taking time off could affect your long-term goals
- [13:26] Will Social Security be eliminated by the Supreme Court?
- [17:04] How to secure your benefit against possible reductions in Social Security
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Today’s retirement headline comes from Kitces.com. Although this website is primarily written for financial advisors, if you are a DIYer, you’ll find loads of valuable content. If you haven’t checked out this website then you head there now to discover the wealth of retirement planning resources available to the DIY retirement planner. Make sure to enter your email address to subscribe to their Nerd’s Eye View email to receive the latest updates and free financial education.
A sabbatical can help reframe your priorities
The notion of traditional retirement has been challenged by the FIRE movement (Financial Independence Retire Early) and the rise of mini-retirements. People want to enjoy their lives more and experience retirement sooner, so many are choosing mini-retirements by taking sabbaticals.
Sabbaticals are extended periods of time away from work that can help workers focus on their life goals and redefine their priorities. The Great Resignation is evidence that burnout is running rampant in America. Taking a sabbatical can help reframe your mindset and combat burnout so that you return to work refreshed and focused.
How to financially plan for a sabbatical
It is important to carefully plan your sabbatical to ensure that you have enough money to live on without taking from your retirement plan. One way to save for leave is to use a 457B or another deferred compensation plan. The 457B allows you to make pre-tax contributions and withdraw penalty-free from this fund during your sabbatical. Listen in to learn how to make the most of the lower tax rate during your sabbatical year.
How to mentally plan for a sabbatical
Before taking a sabbatical it is important to adjust your mindset. Consider some what-if scenarios to help you frame your decision to take time off. The author lists a set of steps that were laid out in Tim Ferriss’s book, The 4-Hour Workweek.
- Define your worst fears by considering the worst thing that could happen if you took a sabbatical.
- What steps could you take to repair the damage by taking a bit of time off?
- What would be the temporary and permanent outcomes or benefits of taking a sabbatical?
- What are you postponing due to fear?
- What is it costing you to not take action financially, emotionally, and physically?
- What are you waiting for?
How would you plan for a sabbatical? Would you save more now? How would you cut your spending?
Resources & People Mentioned
- Kitces article on Sabbatical Financial Planning
- Kitces article on 3 types of retirement
- Kitces article on the FIRE movement
- Indeed article on employee burnout
- World Economic Forum on Sweden’s sabbatical policy
- Research on the Great Resignation
- Reuter’s labor article
- Interactive planning tools
- Finding your tax equilibrium
- Harvesting capital gains
- Marketwatch article on Social Security
- BOOK – The 4-Hour Workweek by Tim Ferriss
- Episode 142 – Are You a Prudent Pessimist?
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