By Katherine McLaughlin
April 13, 2022
From the day you enter the workforce, it's normal to start planning your exit. Whether through retirement savings or some other investment savings vehicle, one of the primary goals of working is often to save enough so that one day, you don't have to anymore. But what if instead of viewing work and retirement as two large, successive chunks of time, they were braided together throughout the middle decades of your life? This is where mini-retirements come into play.
- Mini-retirements are planned breaks from the workforce, usually for a few months or up to a year.
- You should save 50% more than you expect to need during your mini-retirement.
What is a mini-retirement?
"I look at mini-retirements as something that's intentional, and it's not necessarily a permanent retirement. It's stepping away," says Jody D'Agostini, a certified financial planner at Equitable Advisors and a retirement planning specialist.
Similar to a sabbatical, mini-retirements generally last anywhere from three months to a year and provide the opportunity to take a break from work for a specific period before re-entering the workforce.
"It's to provide some oversight of where you are and a pause in the action," D'Agostini explains. "Usually to re-energize and take some time for reflection." Though they often involve traveling or time away from home, this is not a requisite by any means.
The timing and frequency of mini-retirements is also completely up to the individual. It could be one in the middle of your career, many throughout your entire work life, or whatever makes the most sense in your circumstances.
The concept of a mini-retirement is often credited to Tim Ferris and his book, "The 4-Hour Work Week." The idea of taking these purposeful step-backs has grown more popular as the COVID-19 pandemic reshaped the workforce and significantly changed the way a lot of people think about their jobs and work in general.
Why take a mini-retirement?
While there is no singular reason to take a mini-retirement, there are a few commonly cited ones.
"For me, it was the benefit of refocusing," says Taylor Kovar, a certified financial planner at Kovar Wealth Management. He took a nine-month mini-retirement in 2016 and has since taken a few three-month ones as well. It was also a way for Kovar to combat burnout and think about the future he wanted for himself and his family. "It's really not just an extended vacation," he says. "It was more about my mental health, me, and my family."
Mini-retirements can also be good trial runs and give people the opportunity to think about the ways they may want to spend their time in end-of-career retirement. They can also be a way to enjoy specific experiences that may be more difficult in older age. There's also the reality that not everyone will live to full-retirement age, so mini-retirements can be a way to reclaim some agency and ensure your lifetime isn't consumed entirely by work.
How much should you save for a mini-retirement?
At a minimum, you'll want to save enough to cover your living expenses for the amount of time you're not working. However, most experts recommend saving more than that.
"I always tell people to have 50% more than you expect," Kovar says. It's also helpful to save an extra few months past your intended return date in case you have trouble finding a job or re-entering the workforce.
"You really have to create the budget first," D'Agostini says. This means considering all aspects of your current life — everything from mortgages to car payments and student loans — and determining how you'll afford them while you're not working. Maybe that means selling your home or car, or renting them out if you plan to travel. Just make sure you've got a plan for any "back home" expenses in addition to the money you'll need during your time off.
Taking on some kind of side hustle or remote part-time work could help with the budget, but it's important to remember not to overcommit since the purpose of the mini-retirement is to take a break from work. You'll also want to make sure you've implemented a solid budget while you're taking the mini-retirement and check in frequently to make sure your savings will last as long as you need.
Quick tip: End-of-career retirement saving is often done with investment accounts, but the same isn't necessarily true for mini-retirements. Consider your risk tolerance and time horizon when deciding where to save your mini-retirement money.
Can you do a mini-retirement if you have debt?
Having debt can complicate mini-retirement planning but doesn't necessarily rule it out. However, it greatly depends on where your debt is coming from. If it's a mortgage or a car payment with a relatively low-interest rate, the math may work out in your favor — especially if you can rent the asset if you're not using it. Having a lot of credit-card or other high-interest debt is another story.
"With a ton of bad debt and you're barely making those debt payments, then you should probably get to a better financial place first," Kovar says. "What's going to happen is you'll be chasing your tail when you get back. It's also going to dictate the kind of job you have to get on your return," D'Agostini added.
Quick tip: If you have high-interest debt, don't assume a mini-retirement is never in your future. Make a plan to address the debt and use the mini-retirement as motivation.
Are there other factors to consider when taking a mini-retirement?
Financial planning is one of the most important considerations when thinking about a mini-retirement. But there are others to take into account as well.
Potential career setbacks are a common concern. However, D'Agostini says she's finding many employers now are allowing their employees to take this time away. If you're worried about the impacts a mini-retirement could have on your career trajectory, it may be worth having the conversation with your employer to see if you'd be able to agree on a plan for your return.
Health care is another important factor to consider. A continuation of your employer-sponsored health insurance may be an option. If not, you'll want to factor the cost of a state-sponsored plan into your budget. It's also good to be proactive and think about the timeline for saving for a mini-retirement so that when the need arises to take one, you'll already have the cushion.
How do mini-retirements affect long-term financial planning?
There's no one answer to how a mini-retirement can impact your long-term financial planning. It will depend on many factors including your age, how much you already have saved or invested, and how long you're taking off.
However, know that a mini-retirement can affect other financial goals, like end-of-career retirement, if not planned effectively. It's often best to talk with a professional who can look at your situation specifically and map out exactly how various scenarios would impact your financial future.
"We use financial planning software," D'Agostini explains. "We can see the two or three scenarios." From there, you'll be able to decide what option makes the most sense and any steps you'll need to take prior to or on return from the mini-retirement.
Still, if planned correctly, mini-retirements can be an investment in themselves. By taking the time to refocus, you may come out of them with new goals, values, or even perspectives. "My mini-retirement changed how I thought about money, and I'm a certified financial planner," Kovar said. "Look at it as an investment in yourself."
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