There may come a time in your career when working 40-plus hours a week just isn’t possible. It’s common to exit the workforce for a few years to deal with a health issue, or care for young children or elderly relatives. But your reasons for wanting a break may be different! Lots of workers are taking a detour from their career path to travel, take on a creative project, learn new skills, or avoid burnout.
But career breaks come with risks. How will you support yourself (and a family if you have people who depend on you) if you’re no longer earning an income? How employable will you be once you’re ready to work again? These are all things to think about before you craft a resignation letter. With some planning and preparation, a break from work is possible. Here are some ways to make it work for you.
Give Your Break a Purpose
Much like naming a savings goal helps you save more money more quickly, naming the reason for your break can make it a more fruitful and rewarding experience. It can also help you say “no” to things that would detract from your break — you can absolutely say no to work projects when you just want to snuggle your new baby, or say no to babysitting your neighbor’s kids while taking time off to pursue a new business idea.
When you’re not working full-time, it’s really easy to succumb to sleeping in every day (unless you’ve got a brand-new baby, of course!) or being asked to do favors for friends just because you’re the one who’s “home all day.” This is your time! Give it a purpose and say no to things that distract you from that goal.
Examine Your Expenses
If you’ve never created a budget before, now’s a good time. I know, budgeting is so blah, but the purpose is to see where your money goes currently and how you might need to adjust your spending if you want to take time off. From there, you can identify expenses you can easily cut without feeling a huge squeeze on your lifestyle.
Start by making a list of where your money goes (looking through old bank and credit card statements can help with this). How much do you spend each month on rent or mortgage payments, utilities, groceries, clothing, dining out, etc.?
Next, identify what you won’t miss, like subscriptions for things you never use. Those are easy to cut from your budget. Dig a little deeper, and you can find other ways to save. Maybe once you’re no longer in an office, your clothing and dry cleaning bills will get dramatically lower. No more commute? That’s a lot of savings on gas. More time at home to cook means fewer pricey take-out orders.
The key is learning to live on less. Without a steady income, you’ll feel much more secure if your time away from work doesn’t completely drain your bank account.
Set Up an Emergency Fund
Unexpected expenses will keep happening. Your car will need work, your air conditioner will break, your kid will need stitches. None of this will stop just because you’re on a career hiatus. It’s always a good idea to have an emergency fund, but it’s especially necessary when you’re not working. I usually advise three to six month’s of living expenses, but you may want even more than that, depending on how long your career break is. It could take you awhile to reenter the workforce once you’re ready to, also, so add a few extra months for that.
Put the money in a high-yield savings account and leave it alone. You don’t want this money in your checking account because it becomes far too easy to tap into it for non-emergency reasons.
Make Sure You’ll Have Adequate Insurance
Quitting a job without a new one lined up means you’ll lose valuable benefits, the most important being health insurance. Long before you leave, make a plan for how you’ll get coverage, whether that’s through a still-working spouse or the health insurance marketplace.
If you also relied on your employer for life and disability insurance, you’ll be on your own now. You may be able to get reasonably priced disability insurance through a professional or alumni organization. (If you’re freelancing you may be able to obtain disability insurance through the Freelancers Union).
If you have dependents, life insurance is still important. Even stay-at-home parents need coverage! Think about how much it’ll cost to replace all the work you do to raise your kids and maintain your home. Make sure you lock in a 20 or 30-year term life insurance policy outside of your employer. If you’re young and healthy, LadderLife, is a great place to start shopping for coverage.
Think Long Term
A career break doesn’t have to set you back on retirement, but you might be wondering how to stay on track with your long term financial goals if you no longer have access to a 401(k).
If you’re thinking about quitting your job in the next few months, you may want to max out your 401(k) or work retirement account before you leave. The maximum you can contribute is $19,500 per year (for 2020) and it doesn’t matter when you hit the max. For example, if you make $195,000 per year and you contribute 10% to your 401(k), but you know you’re going to quit your job at the end of June, double your contributions to 20% for the first half of the year so you’ll max out your 401(k) before you leave.
Once you do quit your job, you’ll still be eligible to contribute to an IRA. If you qualify for a Roth IRA, make sure to max it out because you’ll likely be in a lower tax bracket in the year you take a career break.
If you have any freelance or consulting income, you would also be eligible to set up a retirement account for your small business by setting up a SEP-IRA or Solo 401(k). These accounts can be funded with pre-tax dollars, which can help you lower your tax bill and help you stay on track for retirement.
Keep Your Network Active
Stay connected to mentors, former coworkers, and old friends, because they’re a rich source of job leads whenever you’re ready to get back to work. Set aside time during your break to catch up via email, or even meet people for coffee. Local networking events can be really helpful, too. Even during a break, keep your next steps in mind, whatever those might be.
If you want to make your career break last even longer, consider working part-time, freelancing or taking on the occasional consulting project to keep money coming in while still having control over your time. There are lots of different ways to make a career break possible and a few months off in between jobs doesn’t have to set you back on your long term financial goals.