Many people desire a break from work. As you get older and spend more years in the workforce, it’s easy to want to hit retirement as fast as possible. But what about when you’re in your 40s or early 50s and still have a ways to go before you want or are able to truly retire? Or maybe you’re just burnt out at any age and need some space to figure out a transition to a new career or business venture. This is where a career break, also known as a sabbatical or mini-retirement, can come into play. In fact, there’s a whole movement dedicated to retiring early and often in mini-retirements, for a sprint-rest-sprint-rest cadence.
For many people, taking a sabbatical or mini-retirement can feel impracticable, and even just thinking about it can come with many questions. How do I fund my sabbatical if I’m not working? What do I do about still trying to save money for other financial goals? If you’re feeling like you need a career break, check out these tips below on how to prepare so that you and your family feel financially secure when you take your much deserved break. For the summary jump to the Bottom Line & TLDR Action Items.
How Do I Go About Funding a Sabbatical?
For many people, the concept of taking a career break means coming to terms with the opportunity cost that usually comes along with stepping away from your current path. Unless you work in certain fields where sabbaticals are more common, you’re going to need to fund your career break yourself.
Start With a Clear Plan
The first thing that you need to do is start with how you want your sabbatical to look. How long do you plan on taking? When do you want to start your career break? Do you plan to travel? Is there anything that you can do while on your sabbatical to extend your cash runway? These are all things that you will need to consider when you first decide that you want to step away from your career for a while to focus on other things. Think of this as creating a wish list of sorts, that will help you decide on what you need to make this sabbatical happen. Once you have a concrete sabbatical plan, then you can begin to focus on the finances.
Get Your Finances in Order
Start looking at your current financial position to understand where you currently are, and if there is anything that can be cut out of your budget during your sabbatical to keep things efficient. Often, people spend money on unnecessary things. You might be surprised at what you spend your money on, and how much you can save during your career break just by cutting back on a few things or not spending money on them entirely during your sabbatical. Looking at things such as eating out, subscription services, and travel can all be areas where you can actively cut back on spending to give you more time. After all, time is money.
Build Your Sabbatical Fund
The simplest way to save for your sabbatical is just like how you save for other areas: put money into an account every month and don’t touch the money until it’s time to spend it. Once you’ve created your plan and looked at your finances, you can come up with a reasonable number that you’ll need to have set aside in cash to fund your sabbatical while you’re not working.
A simple way to come to this number is to look at how much money you need to spend on expenses each month, and then multiply that by the number of months of your desired career break. You’ll also want to add several months of cushion to give you time to search for great opportunities and get back in the game after your break. Coupled with a strong emergency fund as back up, you’ll have the financial security you need. There are also creative ways to fund your sabbatical, discussed below.
Creative Ways to Fund your Time
Rent Your Home While You’re Away
If you’re planning to travel at all during your sabbatical, you might want to consider renting out your home to fund your sabbatical while you’re away. You can investigate short-term or longer-term tenants, and use various platforms like Airbnb, VRBO, or Furnished Finder to help find people who will rent your home out while you’re away.
If this idea sounds like it could work for you, just make sure that you run the numbers to make sure that you’d be okay in the event that you don’t get as many renters as you were expecting, or if someone decides to cut their stay short. You’ll also want to have a few property management systems in place if you’re planning on having multiple people stay in your home just in case something goes wrong or if you need to have your home cleaned before the next guests arrive. You’ll also want to look at local rental laws in your county and state to make sure that this is a viable option for you, as different locations will have different rules and regulations around what is allowed.
Use Penalty-Free Access to Your Retirement Accounts
In certain cases, it might make sense for you to investigate whether you can use your current retirement savings to fund your sabbatical. The IRS does have some specific rules in place surrounding this, but it could be something that works in your favor. Under Rule 72(t), or more commonly known as the SEPP Rule, you can withdraw money from qualified retirement accounts in the form of SEPPs, or substantially equal periodic payments without incurring the 10% early withdrawal penalty. These payments are made over five years, or until you turn 59 ½.
There are other certain parameters that must be met if you want to use this method since you would be pulling money from retirement accounts. If you mishandle your SEPPs, you can be facing early withdrawal penalties that are associated with the account. The SEPP Rule is a lesser-known strategy that can help the right people with the right situation.
If you're closer to traditional retirement age, another rule that you may be able to leverage is the Rule of 55. This rule allows you to take penalty-free withdrawals from your 401(k) or 403(b) if you leave a job once you’ve turned 55. Just be warned that you will still have to pay taxes on your withdrawals, as 401(k) and 403(b) accounts are tax-deferred accounts. The Rule of 55 does differ slightly from Rule 72(t) since the Rule of 55 doesn’t require you to take distributions continuously for five years or until your 59 ½ like Rule 72(t) does.
The Rule of 55 only applies to workplace plans and only to accounts you have with your current employer. There are a few extra rules to this that you can look into here to make sure that the Rule of 55 can apply to you.
These strategies are a bit more complicated than most as there are trade-offs to consider. Although you can avoid the 10% early withdrawal penalty, you will be taking funds out of the equation for the ultimate retirement fund plan. So you lose out on the interest over time. That doesn't mean it's not smart or doable. It's just a matter of running the retirement model with new assumptions to make sure you can hit your number at the target date for retirement. It might be worth talking with a CFP for guidance.
Monetize Your Skills as a Contractor / Consultant
If you have a skillset that is in demand, using that skill might help you get the flexibility you need to fund your career break. Remote freelance work is in demand now more than ever. Having control over your time while generating income can help fund your break from the full-time working world. Even if you don’t have a “skill” so to speak, you can easily do things to make some extra cash along the way. House sitting, dog walking, or even just delivering food are all easy options in the gig economy that you can do with no extra skill set to offset the costs of a sabbatical.
Seek Outside Funding
Depending on the field in which you work or the reason behind your sabbatical, you might be eligible for grants or other types of funding. If your sabbatical will be focused on serving in your local community, for example, you might be able to apply for grants through local philanthropic organizations that are interested in supporting their local communities and the people who are looking to keep them strong.
Your employer might also help fund your sabbatical, if you’re able to prove to your employer that your sabbatical is a form of professional development that will benefit the company over the long term. If you don’t know if your company does this or not, it never hurts to ask and find out if anyone else in the company has been able to take a sabbatical with the company’s support.
Volunteer
Depending on the type of sabbatical you’re trying to achieve, you might want to consider volunteering as a means to cover expenses. Many companies will cover your room and board in exchange for your time as a volunteer in their organization. A great example of this is the Peace Corps, who will send volunteers to various places around the world and cover their housing and food expenses for the entire trip. This typically only works if you’re looking to travel while you are on your sabbatical, but it couldn’t hurt to look and see what options are available to you.
Bottom Line & TLDR Action Items
Taking a pause on your career in the form of a sabbatical can be one of the best decisions that you can make professionally. It can give you time to reduce stress and increase your well-being, as well as pursue any type of passion or research that you might not have been able to otherwise. It can also be a great way to refresh with more energy for a transition into your next adventure. You just need to be sure to plan your sabbatical well financially so that you and your family aren’t feeling financial strain during that time.
Start with a clear plan. To make your sabbatical possible, you need to first plan it out from start to finish to ensure that it goes the way that you want it to. Get clarity and plan out what you want to do, where you want to go if you plan to travel, and how much you estimate it will cost.
Get your finances in order. Understanding your current financial situation will give you a great idea of how much money you will need to have set aside to fund your time. Look at your current necessary expenses and try to find areas where you can cut back on spending while you’re not actively making income, to give you more time.
Deploy creative ways to fund your sabbatical. Whether it be as simple as saving money monthly over a planned period of time or finding more creative ways such as utilizing the SEPP Rule or the Rule of 55, you’ll need to find ways to cover your bills while you’re on sabbatical. If you think that you want to use an approach that has some complexities or potential impacts to other major goals such as ultimate retirement funding , check out jointgoals.com to talk to a Certified Financial Planner to set your household up for success.
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