Episode 70 – How to plan for a micro-retirement
Episode transcript:
[music intro]
Jenny
Welcome back to Fund Your Future with DRS. Today we’re diving into a fascinating concept that’s changing the way that people kind of approach retirement with this idea of a micro retirement. It’s kind of like a short, planned break in your career rather than waiting until traditional retirement age to maybe either spend time with family or travel or pursue a passion project. Seth, you said you had known some folks who did this.
Seth
Yeah, a couple of different people in my life have done this. And, you know, the idea of a sabbatical is something that people are familiar with from educational settings. A college professor or a teacher might take a year off and go study something or kind of dive deeper into a topic. I think it’s this recognition that sometimes you have something outside of work that you really want to work on and trying to figure out how to balance that.
And I think the other thing, just the term retirement means very specific things to people like you can only do it when you’re 65. You can only go sit on a beach, or you can only go play golf. These very specific things you do in retirement, and I think the idea of a micro retirement or a mini retirement or whatever you want to call it, a sabbatical, a leave of absence helps reframe that idea for people that you’re not just working for the next 40 years to then live your life, you know, when you’re 65 or 70 years old.
Jenny
Yeah, it’s definitely a new term that kind of came about. Where do you remember first hearing about it?
Seth
I was listening to a personal finance podcast, was talking about this idea of mini retirements and her idea was that you work for ten years and take a year off, work for ten years, take another year off. And one of the things I actually really liked about that is that your mini retirement or micro retirement was happening at different stages in your life, because I think a lot of times when people have young kids, they want to think about how can I spend time with my kids, because they’re only going to be that age once.
You know, you read stories about people taking a year off and driving around the country in an RV or go visiting with other family, or, you know, there are these experiences and memories that they want to build when they only have that opportunity once in their life to do it.
Part of that podcast, what they were talking about was: what do you need to do in that ten-year period to be ready and prepared for your mini retirement? Making sure you’re still saving for the long term, but saving for the short term as well as sort of, you know, we’ve talked a lot about on this podcast about having an emergency fund, but it’s like building up an extra big emergency fund and making sure you have that savings that you can live off for instead of two months or three months, being able to live off for 12 months or 18 months or however long you’re planning on taking off.
Jenny
Yeah, I think that’s a really key piece of it. Is that planning aspect. And like you said, either using those ten years to kind of plan and say, okay, I’m going to do this in ten years. Maybe even setting it aside in a separate savings account saying, “here’s how much I know that I’m going to need. This is what I want to do.” And making the steps to plan for that.
Seth
Yeah, I actually just recently from a friend, the city manager was saying for his employees, I think he even said the word require. I’m not sure if it’s an actual requirement, but every five years that the employee has to take a five week break, take a vacation for five weeks, and in some ways that made maybe more sense to me in that you’re saving up your vacation, you’re having some committed time off where your organization is on board with it, and I think that’s always the fear for people is like, “I can’t do it, I’m too busy, my organization will never survive” whatever. And I think trying to figure out how to have a conversation with your team, with whoever you work with, you know: what provisions are in my collective bargaining agreement to do that. How can we normalize this sort of, you know, people go on maternity leave, paternity leave I wouldn’t say that’s a retirement, there’s a lot of work, but you’re doing different work.
And I think that’s the other thing that when you think about the term retirement, is that people think about it not working, but the term sabbatical really means you are working on something else. And I think that’s another way to think about it. It’s not “I’m going to go sit on a beach,” but it’s “what are the other things in my life that I want to explore more?”
Jenny
Yeah. So I think that’s why this is becoming more of a popular topic, as people are trying to find that home, work balance and saying, “hey, oh, there are other things that I want to explore”, or “I want to go be able to take a year off to go take my kids around the country while they’re still young before they, you know, get into high school” or just spend time with my kids while they’re young. Or like you said, pursue a passion project, whatever that may be.
Seth
Yeah. I had a friend who just a few years ago is a teacher and took half a year off to hike on the Appalachian Trail. He had done it before when he was younger. It was something he wanted to do before he got too much older and like. So, he still felt like he had the ability to do it the way he wanted to do it.
For him it was also a chance to reflect on what does he want to do after that. And I think people can approach this idea from different ways. It might be easier for people to know they have the opportunity to go back to their job. This is just a five-week break, and my job is going to be there when I come back.
For other people, I think it really is a more of a life transition. “Hey, I’ve done this job for ten years. I’m going to take a year off and figure out if I want to keep doing this, or I might go down a different direction or figure out what opportunities.”
One of the things I remember hearing from people that have talked about this idea in the past, I think we actually hear this with our retirees who are of a more traditional age, is that once you stop working, oftentimes you get more job opportunities, like people are reaching out like, “oh, you’re available now, how can I use your resources?” And it gives you the opportunity to say yes or no. I think when you’re currently working, it’s easy to just ignore those opportunities. And when you’re in a leave of absence or a mini retirement, you have an opportunity to explore some of those other paths that you could take.
Jenny
So, we’ve talked a lot about obviously the ‘why’ and it can seem very appealing to people. But then of course, there’s the other side of the financial piece and the planning for it. How do people typically fund a micro retirement?
Seth
Yeah, I think a lot of it is really intentional savings, as we were talking about. Building up what feels like an emergency fund or a bigger fund, and then also thinking about what your expenses are going to be during that time period. You know, we were talking about if you’re driving around the country in an RV, if you’re borrowing an RV from a friend, if you’re staying at campgrounds trying to understand what those expenses are going to be during that time period as well. You’re building a different type of budget, really, and I think that’s one of the things that is important to understand.
How do my expenses change during that time period? If I have rent and I’m leaving my apartment, maybe that’s an expense that’s gone away? And are there ways to reduce my overall living expenses or make money in a different way? I think that’s oftentimes when people are exploring mini retirements or micro retirements, they’re thinking about, hey, I’ve got this passion project and maybe I want to try to turn it into a business, and so am I able to have an additional income source from that.
And then I think we’ve talked about this on other episodes as well, but there are sometimes additional savings that you can tap into, like DCP. If you’re no longer working, if you separate from employment, that may be a use for those funds.
Jenny
Yeah. I wondered if you could just touch on the DCP withdrawals a little bit.
Seth
Yeah. If you have ended your employment you have access to that money at any age. That doesn’t necessarily work if it’s a leave of absence. And so, if you’re taking an unpaid leave of absence, that’s another thing to think about. I think one of the biggest fears for people just like normal retirement age is health insurance. And, you know, if I’m staying with my employer and I’m just taking a five-week leave of absence, can I have some paid leave in that period and still be able to stay on my insurance?
How can I work that out with my employer? What policies are in place? Those are all questions to ask and explore. There are a lot of different questions about why you want to do it, and then different questions about how to do it. And they may have the how figured out. They’re not sure what they’re going to do with their time, which is also probably more common with traditional retirement.
The other reason I really like this idea is that I think it’s helpful for you to think about what is retirement going to look like for you. I had another friend, who was a physician and during COVID, just got really burned out and couldn’t see himself doing that for the rest of his life. And I don’t remember how long he took off. He had savings built up, but just kind of became a ski bum. He played in the mountains, and that’s what he liked to do for a couple of months. And then he realized like, that wasn’t what he was going to do for the rest of his life. And now he’s back practicing medicine in a 2 or 3 day a week environment.
And the last time I talked about he’s like, “I think I might be able to do this for the rest of my life. I think I might be able to do this in my 70s and 80s.” He struck a balance that made sense for him, and I think sometimes those breaks can give people a different perspective.
Jenny
Yeah, obviously way better than just burning out and giving up and being like, “I’m never going to practice medicine ever again.”
Seth
Yeah, or continuing to do it and being miserable. I think a lot of this comes back to the idea of work life balance and trying to figure out where those tradeoffs are worth. And do you have an environment where you can enjoy your life and enjoy your work?
Jenny
Yeah, these are all great examples of folks who have done this. Do you really think that micro retirements are realistic for everyone?
Seth
Gosh. Probably not. I think there are folks who certainly have not had the opportunity or the time to build up a savings account, and if you’re in significant debt, there are real challenges to that. But I also think in the same way, that long term retirement is a goal. I mean, I feel like a micro retirement could be two weeks.
There are reasons we reset and try to figure out how to balance what’s important in our lives. And I think it also gives you something to look forward to. This is, I think, a lot of the research around vacations, why they’re so beneficial is it’s also the hope of that and the joy in the mental space that that takes up.
You know, obviously, I don’t think everybody’s going to go hike the Appalachian Trail for six months, but I do think an idea of five weeks or something like that, depending on people’s structure and their job. And oftentimes the biggest thing that holds people back is that they feel like they can’t be replaced at work. “Nobody can do what I’m doing.”
And I think the thing to realize and talk to the people on your team about is what happens if you quit, what happens when you retire? When you actually retire? It’s very rare that employers are able to hire a replacement before you leave. And so what sort of cross-training is in place and what work can wait, and what work may need to come off the plate during certain times?
Those are hard conversations to have. I certainly wouldn’t say that it’s easy. I can’t remember if I’ve talked about this on the podcast, but I took the month of September off, did a lot of pre-work with our teams on how that was going to work. And Jenny, you and I recorded some podcasts ahead of time. But I think employers appreciate the openness and the transparency of that versus as we’re talking about somebody burning out and just leaving.
And obviously it may not work for everybody, but exploring the idea, there might be more interest in that. And then also understand that might mean one of your coworkers take some time off and that you’re going to pitch in and figure out how to help. For me, that’s the sort of work environment I want to work in where people feel like they have that flexibility and that work life balance.
And one of the things I’ve thought about a lot is as my parents get older, that might be what I spend part of a micro retirement doing is helping them around the house and getting things set up in their life to age in place. And once again, that’s another opportunity I’m only gonna have once in my life. And so, thinking about what are those key milestones that you really want to focus on.
Have you thought about a micro retirement? Have you thought about a sabbatical?
Jenny
I have to say, before we kind of came up with this topic, not too much, but I do like the idea of maybe taking a month off or something, especially for traveling. My goodness, my husband and I have talked about, you know, going to New Zealand. You want to be able to take more than five days off if you’re going to fly halfway around the world. So, I like the idea of being able to maybe take a month off to do an extended trip somewhere would be really great.
And I think the other reason we really wanted to talk about this on the podcast is that it can be, you know, we do recognize that this may not be attainable for everyone, but at the same time, it’s also really good incentive to save money either with DCP or in your emergency fund. I was going to say for young people, but really for anyone.
I love that idea of saying “I’m going to work for ten years and then take maybe three months off” as your goal. Having enough savings that you feel comfortable that you could take even a month off, I think for most people is a huge goal, but attainable if you kind of plan out your savings and saying, “okay, five years from now, I want to be able to take a month off and take this trip,” or “go spend time with my sister” or whatever the thing is, that’s an incentive for you can be huge. And maybe planning it out a couple of years so that you can really build up those savings.
Seth
You know, if something that is preventing somebody from taking that time off is debt, then working on getting yourself out of debt if it’s building up an emergency fund. So that way you then feel like you have more flexibility. We talked about this on a previous episode. I think about financial independence, financial freedom and the different stages of that.
The ability to take a micro retirement or sabbatical is one of those more advanced stages of financial independence. And you do have to maybe walk through some of those earlier stages to be able to get to that point. And that’s where I think figuring out what the motivation is, why you want to do it, whether that is to explore some passion project or, you know, start a business.
My wife and I were talking about this recently, as I was kind of contemplating the idea because I would really like to fix up my yard, you know, go all in on growing food and really having a yard that I feel like I don’t want to ignore as much I guess. And I certainly don’t need a year for it.
But part of my justification was like, well, you do different things in October than you do in March, and so maybe you need that time. I don’t know, I guess you could take a micro retirement where you take one week off a month, you always take the first week of the month off or something like that.
And once again, I think it’s a good idea to think about that transition to retire. What are you going to do when you’re not working? What are you going to do after work? Whether that’s after work on a weekend or on a holiday, but also after work when you actually retiring and you maybe no longer want to or can work. This is a really just powerful idea, because there are some things that you can only do at different stages in life and really thinking about what are those things that you absolutely don’t want to miss out on.
Jenny
And then as people are thinking about micro retirements or stepping away from their work, if you do leave service officially from your public employment, we just want to remind folks that you can restore that service credit.
Seth
If you take a leave of absence. So, if you’re still with your employer but you’re not working, you’re not using leave. There will be a gap in your retirement credit, and you have the ability to purchase that time back when you come back to employment with that employer. Now, if I were to leave the DRS and take six months off and then go work for the City of Olympia, that isn’t time that can be purchased back because I wasn’t employed at all during that time period.
But if you’ve taken a leave of absence, you absolutely can purchase that time back. And that’s the cheapest time to purchase it back. And when you’re thinking about saving for a micro retirement, maybe that is something to keep in mind is how much is it going to cost for me to purchase this time back as well?
And build that into your overall budget and then your future self will thank you for doing that down the road when you actually have your full-on retirement.
Jenny
Yeah. Put those service credits in there that are obviously going to get you that.
Seth
Yeah. That slightly higher pension. Yeah.
Jenny
Great. Well, if folks have any other questions for us about this topic or other topics you can email us at drs.podcasts@drs.wa.gov.
Seth
Perfect. Thanks, Jenny.
Jenny
Thank you.
[music outro]
Disclaimer
Thanks for listening. And now we’d love to hear from you. What topics would you like to hear about? What questions do you have for us? Send an email to drs.podcasts@drs.wa.gov that’s drs.podcasts@drs.wa.gov. The Department of Retirement Systems provides this podcast as a public service, but it’s neither a legal interpretation nor a statement of DRS policy.
References to any specific product or entity do not constitute an endorsement or recommendation. The views expressed by guests are their own, and their appearance on the program does not imply an endorsement of them or any entity they represent. Views and opinions expressed by DRS employees are those of the employees and do not necessarily reflect the view of DRS or any of its officials.
