“Often when you think you’re at the end of something, you’re at the beginning of something else.”
– Fred Rogers
Undoubtedly, retirement is a major life event! But now, some people have more than one ‘retirement’, effectively taking a break from work, then feeling their way into a new career. And many of our clients are taking sabbaticals, designated time off work. All of these take planning and a considerable financial cushion. A healthy dose of over planning will help you breathe easy when you are starting a new chapter of your life.
This post is the final in a series about preparing financially for five BIG life events. Read post #1: Buying a House, post #2 Job Transition Checklist, post #3, Getting Married, and post #4: Planning for a Baby.
3 THINGS TO CONSIDER WHEN LEAVING THE WORKFORCE
Although a sabbatical, a break from work or a retirement are different events, they have some common planning questions and actions.
1. How long is this break?
This can be a really difficult question because you may not know when your next ‘career’ or adventure will begin. Heck, you may not even know what it is! But it’s an important question to consider, so you can be certain your expenses can be covered during this time. And of course, in retirement there is no way to know how many years you will survive your resignation, but plan for extra time!
2. What are your expenses?
Consider what life looks like once you are in the retired state—your expenses likely look different than they do today. Will your health insurance cost change? Are there expenses that might disappear (coffee, lunches/dinners out)? Think about the new you, your new family situation, and what each month might cost.
3. How much have you saved?
Financially, are you prepared to take this break? Even if you have some smaller sources of income, you will need to have a good financial cushion to enjoy your break. Is your portfolio able to generate the income you need?
GET STARTED!
This is a message for EVERYONE, no matter how far away that resignation feels. Don’t let fear of the unknown paralyze you. I’ve shared this message before: The secret of getting ahead is getting started! Even when you start late, you can still realize your dreams, seize opportunities.
TAKING A BREAK FROM WORK
There can be so many benefits to taking a career break! Becoming a full-time parent or devoting some time to family-caregiving can be incredibly fulfilling and rewarding and require a break from work. Another leading catalyst for a career break might be burn-out or a toxic workplace. Recognizing when something is no longer satisfying or a benefit to your wellbeing isn’t too hard. Leaving conditions like that will lead to instant benefits for a person’s mental and physical health. But not everyone is positioned to take a break—it takes planning and discipline.
Here are a few financial considerations before you take a break from work:
Take a Sabbatical. If you just need a break or a refresh, a sabbatical could be the right move for you. A sabbatical is a designated amount of time (a number of months) away from work and can be paid or unpaid. Increasingly, employers are seeing the value in allowing employees to take some time to themselves. And sabbaticals can have benefits for both employees and employers. If you are feeling burnt out or have something specific you really want to work on, talk with your employer about arranging a sabbatical. We’ve helped many navigate this space successfully, resulting in improved mental health or a reinvigorated career for the client. If you DO plan a sabbatical, and find that you will be unpaid, continue to follow the advice below for taking a break from work.
Make a Budget. With a limited and reduced cash flow, you will need to plan for your expenses.
Live Within Your Means. Follow that budget! There may not be room for any extravagant or unplanned expenses. Do not rely on your credit card or a plan to pay yourself back after the break; It may be something very difficult to recover.
Save an Emergency Fund. This fund is in addition to the savings you plan to live off while on your break. A specific emergency (car or home repairs, medical emergencies) cannot be planned for, but you can save a significant amount of money to help soften the blow.
Look for Other Sources of Income. This could be the time to start a side-gig; Freelance or open an etsy shop. Maybe you have investments that can be cashed in or accounts that offer payments without penalty.
Reentering the Workforce. This is something to consider before leaving. How will you return? Don’t completely ignore this while on your break. Continue to network, add new certifications or skills to your resume. Find a way to grow personally and professionally while you are on a break.
PLANNING FOR RETIREMENT
Hopefully you began thinking about your retirement when you began working . . . well, at least saving for your retirement. It’s never too early to begin saving for that coveted day. Different stages and ages of life require different strategies to plan for retirement.
Before age 49: invest!
Two major vehicles for retirement include an IRA (Individual Retirement Account) or a Roth IRA. Most employers provide IRAs in the form of 401K or 403B plans, where you or your employer can add pre-tax dollars. These regular, automatic deposits are an easy way for you to save because they are taken out of your paycheck before you ever receive it. When you are just getting started in your career you may not think you can afford to save. Some employers offer matching contributions—you should always take advantage of this ‘free money’ by contributing at least enough to receive the entire match. Employers may also offer stock in the company as an investment vehicle.
Roth IRAs are funded with post-tax dollars and so when it comes time to withdraw money from the account, it will be done tax-free. This helps diversify your retirement investments and is especially smart to have if you believe your taxes will be higher in retirement than they are right now.
These are the two most common retirement vehicles, but there are many other investments that can be made—stocks, bonds, insurance, property, and more.
Age 50: begin thinking about retirement
After age 50, you should begin thinking about retirement details. It’s not too early to consider what you want your retirement to look like. At this age, contribution limits will be raised so you can save more. You want to continue growing your wealth, keeping an awareness of your accounts and position.
Age 60: begin preserving wealth
Investment strategies are now focused on preserving wealth. Growth requires more risk taking and preserving requires more conservative investing. At age 59.5 you will be able to take some penalty-free payments if you want/need them. At age 62 you are eligible for Medicare, and you can access Social Security payments (although at a lower rate). Age 67 brings full payments of Social Security.
GET ADVICE
Giving your resignation, taking a sabbatical, or arranging time away from work, should feel good! No one wants the anxiety that can come from not having enough income to take care of yourself. Each situation is different, just like each dream is different. Merino Wealth stands ready to hear your career break dreams and help you achieve them. Navigating numerous accounts can be overwhelming and confusing. Contact us today to help you simplify and map your big adventure tomorrow.