Saving for retirement is very difficult when you’re young because retirement is so far off. I certainly didn’t want to save for retirement when I was 21 years old. Retirement was 40 to 50 years away at that point, and the timeline was too long to contemplate. However, my dad convinced me to start contributing to my 401(k), and I’m still very thankful for that. I’m 40 now and 65 will be here before I know it. One alternative way to look at retirement saving is to plan for mini-retirements instead. This will break up the timeline so retirement isn’t so far away.
In the past, many workers stuck with one job at a single company for their entire working life. Then they retired with a pension and enjoyed their golden years in comfort. However, this is no longer the case. Companies need to optimize their revenue and layoffs is one of the easiest ways to achieve this. Also, companies often merge or go out of business and employees can’t count on a long career anymore. One result is that employees are less loyal and switch jobs every few years.
Career instability often makes life more difficult, but there is an opportunity to look at it from a different angle. Why not plan to take a break from work and recharge your batteries? Workers are increasingly stressed and dissatisfied with their jobs and an extended break can do some good. A year or two off can rekindle the passion you once had for your career or give you the time to find a different career altogether. In the traditional retirement model, workers have many decades to save, but most of us put off this important action. If you plan to take a long sabbatical every 10 to 15 years, then you’ll have to start saving seriously right away.
Here is what you need to do to prepare for a mini-retirement.
1. Save a big percentage of your income. Financial advisors typically recommend saving 10 to 15 percent of your income for retirement. This won’t be enough if you want to retire several times throughout your working life. You will need to increase your savings rate to 30 to 50 percent of your income to have a shot.
2. Reduce expenses and keep lifestyle inflation under control. We tend to spend more when our income increases. But almost everyone can reduce their expenses if they take a good look at what they spend on. Cutting back on nonessentials and keeping lifestyle inflation under control can be difficult. You just have to keep the bigger goal in mind and prioritize your spending accordingly.
3. Find alternative ways to generate income. An alternative source of income will greatly help you through those lean years during the breaks. There are many ways to generate income other than a full-time job. For example, you can invest in dividend stocks, buy a rental property, house sit, work odd jobs or start a part-time online business. The income from alternative sources might not be as high as your full-time job, but you won’t be working 60 hours per week either.
4. Track your expenses and budget for travel, retraining and health care. Of course, you don’t want to just hang out at home during your mini-retirements. Many people take this time to travel and see the world at their leisure. You need to track your expenses so you can figure out how much you need to fund a year without a full-time job. Also, depending on your career, you might need to retrain when you’re ready to go back to work. Health care is another big concern, and you need to check how much it will cost to buy private health insurance. All these items are expensive and you’ll need to budget for them.
5. Have an open mind. Taking a year or two off from work can change your life. You’ll have time to pursue your interests and who knows what doors will open. You have to be flexible and look for opportunities when you’re not working full time.
Taking periodic mini-retirements isn’t for everyone. If your identity is tied to your job, then the traditional retirement model might be a better fit. Financially, you probably won’t be able to build up as much wealth if you take mini-retirements throughout your working years. However, there are many benefits, too. You won’t be burned out from working at the same job for 30 years. You will be able to do whatever you want during those breaks. How many people can live life on their own terms while they’re young? Retirement saving will also be much more urgent because you’ll need to fund those years away from a full-time job.
Joe Udo is a stay at home dad who blogs at Retire by 40 .
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How to Prepare for a Mini-Retirement originally appeared on usnews.com
