A mini retirement is a planned, extended break from full-time work that’s taken before traditional retirement age. Unlike a vacation or employer-sponsored sabbatical, a mini retirement is self-funded and typically lasts a few months to a few years. People often consider a mini retirement during career transitions, periods of burnout or when testing out their future retirement strategy. However, taking time off mid-career or pre-retirement comes with financial and logistical trade-offs.
A financial advisor can help you assess whether a mini retirement fits into your long-term financial plan and offer guidance on how to take one without derailing your future goals.
How a Mini Retirement Works
A mini retirement is more than just a long vacation. It’s a deliberate break from work, typically taken with the intention of recharging or reassessing life direction. Unlike sabbaticals, which are often granted by employers with the expectation of returning, mini retirements are typically unpaid and may involve quitting a job altogether.
There are three common times people take a mini retirement:
- Early career. Often before major financial or family obligations, allowing for travel or skill development.
- Mid-career. A reset point for people reevaluating their job, industry or long-term priorities.
- Pre-retirement. A test run to assess readiness for full retirement, or to pursue bucket list goals before age or health becomes a limiting factor.
A mini retirement often includes life changes like downsizing, temporarily relocating or pausing retirement contributions. It requires financial planning to cover living expenses, insurance and taxes during the time off.
Pros of a Mini Retirement
A mini retirement is different from being unemployed because it is a choice made with intention and preparation. A well-planned mini retirement can help reduce burnout, improve motivation and give you a chance to test your retirement budget and lifestyle before fully retiring. It can offer you emotional and lifestyle benefits, such as:
- Time for travel or passion projects. Many people use a mini retirement to explore the world, volunteer, write a book or learn a new skill.
- Clarity around career goals. Time away can bring clarity. People often return to work reenergized or shift to more fulfilling careers.
- Improved health and wellbeing. A break from work stress can lead to better sleep, improved relationships and reduced risk of burnout.
- Deepened family connections. Whether it’s time with kids or aging parents, a mini retirement provides space for meaningful time together.
- Perspective on retirement readiness. Especially for pre-retirees, this can be a helpful dress rehearsal for the real thing.
Cons of a Mini Retirement
Despite the appeal, there are trade-offs that should be considered carefully:
- Lost income. The most immediate downside is the loss of earnings, which may delay financial goals or reduce overall retirement savings.
- Reduced compound growth. Pausing 401(k) contributions or other investments for even a year or two can have a long-term ripple effect.
- Potential career setbacks. Depending on your field, time away could stall promotions, raise questions from future employers or mean re-skilling.
- Tax and insurance complexities. You’ll still owe taxes on any investment withdrawals you’re relying on. You also may need to source your own health insurance, which can be expensive.
- Missed employer benefits. Taking time off could affect vesting schedules, stock options or other workplace incentives.
3 Examples of Mini Retirements
Young Professional: 12 Months
A 29-year-old software engineer with no dependents decides to take a year off to travel Southeast Asia and work on a personal app. She has $50,000 in savings, which she plans to use to fund her lifestyle abroad while keeping fixed expenses low.
However, there are several things she’ll have to consider:
- Whether to pause student loan repayments, or switch to an income-driven plan.
- If she might want to opt into a high-yield savings account for emergency funds.
- Whether she’ll keep her apartment, as well as how to budget and prepare for reentry costs like rent, relocation or job hunting upon returning.
Couple: 24 Months
A married couple in their early 40s decides to take a two-year mini retirement to travel with their school-age children and explore homeschooling. Here, their budget will depend on where they plan to travel. For example, spending several months in a South American country like Costa Rica or Panama will cost significantly less than European destinations like Switzerland.
Here are some of the considerations they’ll need to make:
- Plan for health insurance coverage for all family members.
- Create a travel budget that includes housing, transportation and schooling expenses.
- Consider remote income streams or part-time work to offset costs.
Pre-Retiree: 6 Months
A 60-year-old executive steps away from work for six months to spend time with family and test out what full retirement might feel like. Here, they’ll likely try to live off their retirement income to get an idea of whether or not it will be sufficient to support their needs when they actually retire.
But there are some other things they’ll need to keep in mind, such as:
- Monitoring their spending habits and lifestyle satisfaction.
- Using the experience to fine-tune Social Security timing, investment allocations and estate planning documents.
Financial Planning Considerations
To make a mini retirement work, financial preparation is key. It helps to have a detailed budget that accounts for both fixed expenses, such as rent, insurance and utilities, and variable spending, like travel, dining out and leisure activities. This helps you gauge exactly how much you’ll need each month and avoid running short while you’re away from work. It’s also a good idea to build an emergency fund of at least six to twelve months of living expenses before stepping away from your job. This cushion can help cover unexpected costs or delays in reentering the workforce.
Health insurance is another major consideration. Explore options such as COBRA, ACA Marketplace plans or spousal coverage to ensure you remain protected during your time off. You’ll also want to factor in the retirement contributions you’ll miss while not working. Consider how you might “catch up” later, either by increasing your savings rate when you return to work or using catch-up contributions once you’re eligible.
Taxes also play a role. If you’re drawing down investments to fund your mini retirement, you may trigger capital gains or even increase your taxable income. Managing withdrawals for tax efficiency can help keep your overall liability low. Similarly, you’ll need a plan for ongoing debt obligations, such as student loans, mortgages or credit cards, to avoid financial strain while you’re on break.
Finally, think about your reentry plan. Whether you intend to launch a job search, tap your network for new opportunities or start your own venture, having a roadmap for returning to work can help ease the transition. A financial advisor can also help you design and stress-test your mini retirement plan, making sure it fits with your long-term goals and doesn’t derail your progress toward financial security.
Bottom Line
A mini retirement can provide the time, space and freedom to live intentionally, but it isn’t without risks. If you plan thoughtfully and understand the financial implications, though, it can be hugely rewarding experiences. Taking a year off in your 30s, hitting pause mid-career or easing into full retirement can all offer distinct benefits, from traveling to hitting reset on your career to trialing your retirement lifestyle.
Retirement Planning Tips
- A financial advisor can help you pick investments and manage risk for your retirement portfolio. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- SmartAsset’s Social Security calculator can help you estimate future monthly government benefits.
- Mandatory distributions from a tax-deferred retirement account can complicate your post-retirement tax planning. Use SmartAsset’s RMD calculator to see how much your required minimum distributions will be.
Photo credit: ©iStock.com/Jacob Wackerhausen, ©iStock.com/Dilok Klaisataporn, ©iStock.com/Jacob Wackerhausen
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