I’m 41 and feeling a bit burned out after 10 years at my current job, so I’m thinking about taking a year or so off to travel. I have no dependents, no debt to speak of and I’ve got about $750,000 in savings. Still, I worry that if I leave my job I may not be able to find another later on. What do you think — am I insane for wanting to quit my job in the current economic environment? — Phil O.
Insane? Not at all.
I’m sure there are plenty of people out there who would jump at the chance to get away from the work-a-day grind if they had anything close to the resources you do. Indeed, many people operating on far thinner margins still manage to take time off to rejuvenate themselves or explore new career possibilities.
So if you really feel burned out — as opposed to being in a temporary funk — I don’t see anything wrong with tapping into your financial cushion now as opposed to waiting another 25 years until you retire.
Of course, there is some risk involved. There’s certainly no guarantee that you’ll be able to find a new job that gives you a salary and benefits comparable to what you’re currently making .
If the economy is still struggling when you’re ready to reenter the workforce, finding any job could take quite a while. Between 2007 and 2011, the median length of time it took an unemployed person to find a new job nearly doubled from 5.2 weeks to 10 weeks, according to a recent Bureau of Labor Statistics report. These figures don’t include the unemployed who, unable to find work, gave up. Those discouraged job seekers spent a median of 21.4 weeks before throwing in the towel.
As the economy improves, however, so should the ability of workers to move in and out of jobs. As long as you have skills that are valuable to an employer — and I assume you must, if you’ve been able to earn enough to support yourself while socking away so much dough — I think your worry that you may not be able to find a job is overblown.
Taking some time away might even work in your favor. By giving you the opportunity to recharge, a break may help you become a more motivated and productive worker and possibly enhance your future earning ability.
Research also shows that a hiatus may give you the chance to acquire professional and other skills you may not have had a chance to build otherwise. Such benefits are probably why nearly a quarter of the firms on Fortune’s 2012 list of the Top 100 Companies To Work For offer fully paid sabbaticals.
Even if you have to settle for a job that doesn’t pay as well, your chances of ending up impoverished later in life don’t strike me as very high given the amount of money you’ve already managed to set aside.
Let’s say that between living expenses, taxes and just having a good time gallivanting around, you withdraw $150,000 from your nest egg during your year off. Assuming you earn enough you don’t ever have to dip into the remaining $600,000, you should be able to live pretty well in retirement just on that sum plus investment returns alone. You wouldn’t even have to save another cent.
With just a modest 5% annual return, for example, $600,000 would grow to roughly $1.9 million by the time you’re 65, which is enough to generate about $75,000 in inflation-adjusted, income throughout retirement.
I think it’s far more likely that you’ll be able to find a decent job, continue to save and build an even bigger retirement stash. But even if that’s not the case, it’s not as if you’ll have to go into survivalist mode to get by.
There’s one other reason you may want to go ahead with your wish to take a year off: It may make you happier.
I certainly don’t want to discount the importance of working hard, saving diligently and making sure we meet our financial obligations. But there’s more to life than just making the most money you can or racking up the largest possible 401(k) balance. You also want to enjoy yourself and feel fulfilled. If leaving the work-a-day world for a while will help you achieve a better life-work balance, I say go for it.
Before you do, though, you’ll probably want to do a little planning. Estimate how much you think you’ll need to spend during your year off and figure out which accounts you can best tap for cash. As much as possible, you should draw from savings accounts and the like, rather than investment accounts to avoid paying taxes on investment gains. Ideally, you should also avoid tapping 401(k)s and IRAs since withdrawals may trigger penalties in addition to taxes.
Think, too, about how you actually want to spend this time off so you get the most out of it. You can find suggestions for different types of sabbaticals, as well as personal stories from people who’ve taken one by going to YourSabbatical.com. And rather than just walking off the job, you may want to try negotiating a paid sabbatical, or at least the option of returning to your company. If you’re unsuccessful, hey, you’re no worse off.
Bottom line: It seems to me that you’re in a pretty unique position to be able to pull off something that many people can only dream about. But ultimately you’ll have to decide whether the gains from going ahead with your plan outweigh the risks.