Carrie Sax, CFA, CFP®, shares how to evaluate the cost of a sabbatical and financial factors to consider before stepping away from work.
Sabbaticals were once most closely associated with academics taking extended time away to study or pursue research. Fortunately, sabbaticals are more widely accepted today and can take many forms, from an extended trip to time away for personal priorities or a career transition.
For many, it’s not a question of “would I benefit from a sabbatical,” but “can I afford to take one?” Answering that question requires looking beyond the cost of the time away itself. It also means considering what stepping away from a paycheck could mean for your benefits and longer-term financial plan.
Back in 2008, just before the spectacular housing market crash that led to the Great Financial Crisis, I left for the South of France on a one-year sabbatical. Prior to my sojourn, I worked long hours as a stock analyst on a successful mutual fund team. I was also a new partner at my firm, making more money than I ever thought I would. Yet despite the income, the title, and the growth prospects, something was missing.
I wanted more than just a title and a paycheck. I wanted meaning, clarity about my life – who was I, where was I going, and why? Something of an early mid-life crisis. In any event, I knew it was time to leave the rat race and reconnect in Provence. While my fellow partners had a different opinion, I can confidently say it was one of the best decisions of my life.
Living in France for almost a year – and serendipitously missing one of the most stressful financial crises of our lives – was a life-changing experience and just what I needed. My time abroad gave me the chance to slow down, get to know myself, and discover what mattered most to me. There were no deadlines, no to-do lists, just an open page of exploration and new experiences. And a lot of chocolate croissants along the way.
Now comes the financial piece. A big part of why my trip was so rewarding was that I had substantial savings set aside and minimal money stress. I also had a master’s degree, meaningful career experience, and important industry credentials which helped give me confidence in my ability to re-enter the workforce when I returned home.
Point being, going to France wasn’t an impulsive decision, but a well-thought-out and well-funded adventure. Without those resources, my year abroad would very likely have been a lot less rewarding.
So while it may be clear that a sabbatical is just what you need, you'll want to first make sure you have the resources in place to make the most of your time off. A great starting point is to estimate how much you'll need to finance your trip, and, if you're staying home, how long you can afford not to work. To better estimate expenses, I suggest planning at least one year ahead. This will give you time to not only explore different destinations and associated costs, but to start saving up and reflecting on what you hope to get out of your "gap" year.
Getting creative doesn't hurt either! You might consider unconventional ways of living in another country, or at home. For example, I spent four months of my year in France at a Buddhist meditation center where room and board were covered in exchange for volunteering 20 hours a week. Not only did this add more mileage to my savings, it was a great way to immerse myself in the culture while making time for some serious self-awareness through daily meditation. If living abroad is on your checklist, programs such as teaching or volunteering abroad can help cover your costs while providing an insider's view of the culture.
Another important consideration is your career. While a sabbatical at any age can prove extremely rewarding, taking a break at the wrong time can increase your stress levels and reduce the benefits of time away. If you have limited experience in your chosen field, I would suggest clocking in a few more years in order to acquire the skills and tenure to make you a desirable employee upon your return. That said, if you're looking to make a career shift, a sabbatical can serve as a natural pivot point and lead to interesting conversations on job interviews down the road. Either way, make sure you set yourself up for success by gaining the skills, education, and/or credentials on the job before you leave.
Key planning steps to address before stepping away from work:
Your sabbatical budget is one piece of the equation, but stepping away from an employer will also likely affect your healthcare coverage, retirement savings, and financial reserves.
Leaving an employer may also mean leaving an employer-sponsored health plan. COBRA or an ACA Marketplace plan could provide alternatives, but the premiums and coverage terms may differ from what you have through work.
If you are covering a spouse or children, the change can have a larger effect on your monthly budget. Price your expected coverage before deciding how much you need to set aside for the sabbatical.
A year away from work may mean a year without contributions to an employer retirement plan. You could also miss employer matching contributions that would otherwise have been made during that period.
The long-term effect will depend on the length of your break and where you are in your savings timeline. Modeling the interruption can help put that tradeoff into context before you commit to the time away.
Money earmarked for the sabbatical has a different purpose from an emergency reserve. When planning for time away, it can be useful to consider whether your sabbatical budget leaves enough flexibility for unexpected expenses.
This distinction can become especially important if returning to work takes longer than anticipated. Maintaining additional reserves may give you more options if your timeline or expenses change.
A sabbatical year typically means a significant drop in taxable income, which may put you in a lower federal tax bracket. That shift could create an opening for strategies that are less advantageous in high-income years. Roth conversions, for example, may carry a smaller tax cost when your income is well below its usual level. An advisor at EP Wealth can help you evaluate whether any of these approaches fit your situation as part of a broader tax planning strategy.
Planning for a successful sabbatical can be a lot of work. If you're not sure you're up for the task, consider enlisting the help of a professional. A financial advisor can help you create an in-depth plan, one that considers your assets, liabilities, and income, and can model different scenarios to let you know what's doable and what's not. Your advisor can tell you if your dream sabbatical is out of reach right now, and make recommendations on where to trim back or how much more you'll need to save to make it a reality.
Regardless of your approach, taking a close look at your financials and putting a clear plan in place will help lay the groundwork for a rewarding and possibly life-changing experience!
If you're considering a sabbatical and want to talk through the financial picture, connect with an advisor at EP Wealth.
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