The midpoint of your career might seem like a time to chase promotions and higher earnings. But if you’re burned out and feeling the strain of juggling work with personal commitments, a sabbatical could be worth considering.
Sabbaticals are often touted as a way for pre-retirees to test the waters without ending their careers cold turkey. But your late 30s or 40s may be an optimal time to take an extended break.
At that stage, you may be grappling with the challenges of raising kids while juggling the needs of aging parents. A six- or 12-month break could help you recharge, step up at home or pursue a passion project you’ve neglected.
The reality, though, is that if you’re going to take a sabbatical, you’ll probably need to do it on your own dime. Most sabbaticals are unpaid, according to Mercer, the global human resources firm, which says that just 14 percent of companies in America offer the benefit. That means that in many cases, employers may not even hold your job.
That doesn’t mean a mid-career sabbatical isn’t worth pursuing. Tackling these questions could help you pull one off, according to three seasoned financial professionals who have worked through this very decision with clients of their own.
Where will the money come from?
If you’re self-funding a sabbatical, make sure you’re pulling the money from the right place.
Brian Schmehil, managing director of wealth management at The Mather Group in Chicago, says, “Consider using existing cash, high-yield savings and taxable brokerage assets before tapping retirement accounts. If selling investments, positions that qualify for long-term capital gains may be more tax-efficient.”
Schmehil cautions against tapping tax-protected retirement accounts before age 59 1/2, as withdrawals may be subject to a 10 percent penalty. Also, be careful with a 401(k) loan. If you don’t repay it on time, it can be treated as an early withdrawal that’s subject to penalties. Borrowers generally get five years to repay a 401(k) loan, but you may have just 60 to 90 days to repay if you leave your job (voluntarily or otherwise).
What’s your spending plan?
A sabbatical offers the benefit of free time. That’s a wonderful thing, but a potentially costly one, warns Christopher Walsh, senior financial adviser at Capital Choice Financial Group in Phoenix.
“Have a budget for that time,” Walsh says. “I’ve seen instances where people basically spend double their income when they don’t have a plan.”
In the course of planning your sabbatical, identify your biggest goals, but tie them to a calendar and budget. Taking courses, traveling and boosting skills can be good opportunities, but the numbers need to work.
What will you and your family do about health insurance?
Taking an extended break from the workforce could mean giving up your job or, at the very least, subsidized health insurance. The cost of maintaining coverage must be part of your budget, Walsh insists. He recommends looking at COBRA if your sabbatical will span 18 months or less, since that’s usually the maximum amount of time you’re allowed to use COBRA.
“It’s basically your employer’s benefit carried over, except you have to pay the employer’s portion. Typically, it’s a lot more expensive, but if you like your current coverage, it can be a wonderful option,” Walsh says.
Your employer may also be willing to continue providing health insurance at a subsidized rate, but that’ll depend on your workplace’s specific policies. If COBRA is cost-prohibitive and you can’t keep your current coverage, you can look at an Affordable Care Act plan purchased through a government-run exchange like HealthCare.gov.
Are you comfortable with the opportunity cost?
The full cost of a sabbatical may not be obvious up front, Schmehil says.
“Consider how long it may take to find your next job and whether your income could be lower when you return,” he says. “You may need to fund not only the sabbatical, but also several years of potentially lower earnings.”
Schmehil also says that even if you’re able to keep your job, stepping away could mean missing out on promotions or slowing your career progression.
“Continuing to build your skills during the sabbatical may help reduce some of these risks,” he says.
Domenick D’Andrea, financial adviser at DanDarah Wealth Management in Westbury, N.Y., notes that a sabbatical could mean losing out on a year of retirement plan contributions. When you’re mid-career, that could have huge implications.
“It’s not just losing that year of savings, but the potential growth on those dollars over the next 20 to 30 years,” he warns. “It could also cause you to have to work extra years on the back end instead of retiring at your goal age.
Is a sabbatical right for you?
Given the planning and financial risks, a sabbatical isn’t right for everyone. People who use one as an escape hatch may end up regretting it.
If you’re stepping away because you hate your job or workplace, a sabbatical won’t fix the underlying problem. It simply puts those issues on pause while eating up some of your savings. You may also regret the break if you underestimate how difficult it is to reenter the workforce and have to scramble for a decent salary once it’s over. Retaining some savings to cover a few post-sabbatical months could ease the transition.
Who truly benefits? People who view a sabbatical not as an exit, but as a deliberate reset or opportunity to accomplish something specific. A sabbatical works when you have a clear purpose like supporting an ill family member, taking over primary caregiving so a partner can rebuild their career or tackling a physically demanding bucket-list goal that can’t wait until your 60s.
The decision comes down to trade-offs. If skipping a year of retirement plan contributions means working two years longer at the end of your career, ask yourself if that’s worth a period of freedom now. If you decide that it is and do the right planning, there’s no reason a sabbatical has to wait until you’re close to retirement age.
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