Is Money the Only Ingredient for Mini-Retirement

TLDR: You also need a solid plan and a certain level of social proof.

This idea of mini retirement (or sabbatical year or career break) has been around for many years. A mini retirement is when one takes extended time away from work intentionally. It is different from taking a month off from work by clearing the unconsumed leave or employer-granted sabbatical leave in our HR handbook.

There are many reasons why people take a mini retirement

To pursue further studies
To rest and reset after a rough stint in the corporate world
To travel and see the world
To care for their elderly parents
To care for their young children

As we enter the 3rd year of this unprecedented health pandemic, we get to speak with more people who are interested in pursuing this alternative lifestyle, rather than the traditional study-work-retire routine that we are accustomed to.

One of the realisations that many people got from this pandemic is that life is full of uncertainties. We may be good and healthy today, but we never know what life will bring us in the coming days, weeks or years. Many people realise that if they have the means, they should start living a purposeful life now, rather than later.

Here is a 3-step approach one can consider when planning for their mini retirement:

1. Sketch out a well-thought-out plan with purpose

Before you schedule that zoom call with your manager to break the news about your departure, it is strongly encouraged that you spend time understanding why you want a mini retirement. If you are young, single and with no debt, it can be a relatively easy decision. For most people, it is a major life decision that should not be taken lightly.

If the only reason is to get out of a bad job, then perhaps getting a better job could be the better solution than mini retirement.

Beatrice (not her real name), whom I spoke to recently, shared that she would like to take a break from the corporate world and would like to know if she can do so. Given that she is only in her late 30s, she is naturally concerned whether she will run out of money eventually. When probed further about what she would like to achieve during her break, she shared that she would like to use her knowledge and experience in coaching to make a difference in people’s lives. She feels that will give her more purpose in life, rather than chasing money in a corporate setting. If possible, she hopes to carve out a second career.

Beatrice’s example leads to my second point, you need to decide how you would make use of your time during your mini retirement and spend it with purpose.

The need to take time off can be a very difficult one when your purpose and the reality play tug-of-war with you.

Ivy (not her real name) had hoped to take extended time off from work to spend meaningful time with her mother after the passing of her father. Despite being financially enabled by the inheritance from her father, Ivy was reluctant to do so. She had a stable job and was well appreciated by her manager who intended to groom her for a bigger role.

Even with the assurance that she can afford to take the time off and still have a decent retirement afterwards, there is a fear of missing out on a good career or falling behind her peers. It was only two years later that she decided to “activate” her mini retirement wealth plan to spend time with her mother.

2. Determine how you are going to fund your mini retirement

Once you know what you want to spend time on, you can begin calculating how much you need during this period. Other than your living expenses, you need to be mindful of the potential one-time large expenses such as:

Travelling, or
Educational courses, or
Insurance commitments, or
Income tax from the previous year

There are various methods you can consider using to fund this. You can either keep this amount as cash in the bank or low-risk accounts (which we usually recommend) or try to create an income stream from your existing assets.

However, you need to do your due diligence and practise positive scepticism when it comes to schemes or investments that tout easy passive income.

3. Talk to people who have done something similar or helped people on this before

One of the mental challenges one might face when pursuing a mini retirement is that you are planning to do something out of the norm. Humans are social beings. It is built in us to feel fearful if we are going to do something that is different from what our peers are doing.

To overcome that, we can proactively look out for people who has done something similar and speak to them about their experience. This can help us better grasp the pros and cons of taking such action. In other words, it will be helpful to seek out social proof to assure and validate our attempt to undertake certain actions.

The thought of stopping work for their children had never crossed the mind of our clients, Peter and Jan (not their real names), until their first child was born. Their idea was to have Jan stay home during the formative years of their first and eventually their second child. They also hope that Peter does not end up working long hours and compromise the time spent with the children. To them, it would also be ironic that they cannot be self-sufficient in retirement and become their children’s burden in the future.

Similarly, while we assure them that they will be ok financially, their concern is that nobody within their social circle has done this before. Most young parents they know of are dual-income families. It will definitely be more assuring if they get to speak to another couple who has been there and done that.

If there is no one for you to speak with, you can consider asking yourself these questions:

Do you have a career that you can fall back on? If not, will it be ok for you?
Are you ok falling behind your peers professionally and financially?
If you are prepared to do this regularly, is there a job that can fit your lifestyle?
Are you prepared to be asked by prospective employers about your decision?
Have you worked out your long-term goals such as retirement or children education?

Taking a mini retirement can be an eye-opening experience for anyone. However, it requires extensive and thoughtful planning for both your short and long-term needs. If that is not done properly, it can become a disaster. Take the time to explore the steps. Once you have done that, you are well on your way to your first mini retirement. All the best!

This is an original article written by Loh Yong Cheng, Lead of Advisory Team at Providend, Singapore’s First Fee-Only Wealth Advisory Firm.

We do not charge a fee at the first consultation meeting. If you would like an honest second opinion on your current estate plan, investment portfolio, financial and/or retirement plan, make an appointment with us today.

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