Oct 7, 2024
Taking off a few months from work to go on a dream trip may sound like a fantasy, but some young people are making it a reality. The Wall Street Journal recently reported that a growing number of young professionals are opting for "micro-retirements," or leaving work for months at a time in their 20s and 30s in order to explore the world.
Data from Gusto shows that this idea is gaining in popularity, although the number of workers who take long career breaks is still fairly small. A survey of 300,000-plus small and mid-sized businesses revealed that 0.141% of employees were on sabbatical, with millennial workers the group most likely to be off of work for an extended time.
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Those embracing the idea of micro-retirements want to travel while they’re young and carefree, rather than working hard for decades in the hopes that they’ll be healthy enough to indulge their dreams when they finally reach retirement. While that sounds good, it can come at a huge cost.
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Missed work can impact retirement savings
Work breaks early in life may provide the chance to do things you couldn't do as a senior, but they can also devastate your efforts to save for a secure retirement. Skipping out on peak earning years can cost you decades of compound growth.
The Wall Street Journal article gave an example of a 30-year-old earning $90,000 who gets annual 5% salary bumps and who invests 15% per year into a 401(k). Missing one year of work per decade would leave them with $600,000 less in savings even if they were able to return to their job at the salary they were earning when they left.
This could reduce their income in retirement by around $24,000 per year based on a common rule for setting a safe withdrawal rate. That's a lot less money to live on when some expenses tend to increase, too.
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Micro-retirements can hurt your finances in other ways too
A break from work can also cause other financial damage beyond just decimating your retirement accounts.
If your employer doesn't continue subsidizing health insurance premiums when you’re away, you may be forced to pay for expensive COBRA coverage (if you can qualify) or go without insurance — which could put you at risk of catastrophic financial loss if you get sick while traveling.
If you go into debt to cover costs while you're without income for months on end, the interest you owe could also affect your ability to save for years to come as you devote some of your income to paying for past trips.
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Even your Social Security benefits could be impacted. Benefits equal a percentage of average wages earned over 35 years. If you repeatedly take months off in the middle of your peak earning years, you'll inevitably drive down that average wage and end up with lower retirement checks.
And, all of this is assuming you can easily find a job when you come back. Only around 11% of employers offer sabbaticals, according to the Society for Human Resource Management, so you may need to give up your job to go away. Your current employer may not hire you back, and future potential employers may be concerned about multiple long gaps on your resume — all of which could make it harder to find well-paying work.
You may think these tradeoffs are worth it and that you’ll just work longer later to make up for the time you took off mid-career. Unfortunately, this isn't always feasible. Consider the fact that the TransAmerica Center for Retirement Studies found that of the Americans who decided to retire early, only 17% of them did so because they were in the financial position to do so. Many others cited family issues, health issues, or a lack of job opportunities as their motivating factor.
If you do want to travel as a young person, there are options like looking for remote jobs you can do from anywhere. If a work-away job isn't available to you, though, or if you simply like the idea of truly stepping away from it all, you’ll need to make a plan to mitigate these financial downsides before you go or you’ll be left with serious regret.
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Christy Bieber has 15 years of experience as a personal finance and legal writer. She has written for many publications including Forbes, Kilplinger, CNN, WSJ, Credit Karma, Insurify and more.
