Sabbatical Financial Planning: How To Help Clients Maximize Opportunities And Minimize Risks

Sabbatical Financial Planning: How To Help Clients Maximize Opportunities And Minimize Risks

For many workers, a typical career entails a series of successive jobs over several decades, with the end goal of retiring and finally being able to ‘relax’. And while most breaks from work on the traditional path are limited to short vacations, there is a growing movement of individuals who want to take extended time off during their working years to take advantage of their health and opportunities that might not be available to them once they reach ‘normal’ retirement age. One way to do so is through a sabbatical, and advisors can play an important role in supporting clients who are interested in taking this step.

A sabbatical refers to a period of time in which someone takes an extended, planned break from work prior to retirement, often as an opportunity to focus on their wellbeing and/or to gain valuable perspectives of life outside of work. While sabbaticals can involve as little as 1 month for some individuals, taking a sabbatical for 6–12 months is not uncommon. However, longer sabbaticals do carry more substantial financial and career ramifications that require careful planning, especially when extensive travel plans are involved.

One of the biggest challenges of planning a sabbatical is enduring a period of little or no income and coordinating job opportunities after the sabbatical is completed. While some employers have formal sabbatical programs that guarantee the individual can return to the same job after their time away, others may be willing to allow a sabbatical on an ad hoc basis. And there are other employers who are less flexible that may require the individual to quit their job altogether in order to take significant time away from work.

With this in mind, advisors can help clients assess how their sabbatical plans will affect their other financial goals. This could include planning for how their expenses will change during the sabbatical as well as simulating how the sabbatical will impact their financial picture going forward. Advisors can also add value by analyzing tax planning opportunities during the sabbatical; for example, having reduced (or no) income during the sabbatical could create unique opportunities for Roth conversions or harvesting capital gains.

Advisors with clients who might be interested in taking a sabbatical can start the conversation at a strategic level, thinking about their goals for the time off as well as how it relates to their other life objectives. For example, some clients might be fine with taking a one-year sabbatical that pushes out their projected retirement date by two years, while other clients might prefer to stick with an earlier retirement date. In addition, advisors can help clients explore contingency scenarios if they do go through with the sabbatical. For example, an advisor can model what the client’s financial picture will look like if it takes 3 months longer than anticipated to find a job after returning from the sabbatical.

Ultimately, the key point is that advisors are uniquely positioned to add significant value for clients who are considering a sabbatical, both in conceptualizing what the sabbatical would entail and how it would affect their other financial goals. In the end, while taking a sabbatical might not maximize a client’s net worth, it could be a decision that maximizes how they experience their life!

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