To define retirement in 2022, you have to think about how the next wave of retirees will be very different from the last. Millennials, in particular, give mini-retirements or sabbaticals a lot of importance and see them as normal.
Get tips on how to retire at any age, no matter where you are in life. 7 Ways to Reach Your Retirement Goals That Are Surprisingly Easy
A mini-retirement is when you save enough money to pay for a year’s worth of expenses. Then, the person who is getting ready to retire quits their job and travels the world while they are still young and healthy. The idea of a mini-retirement sounds great, but it also needs buy-in from the company’s leaders and, to a large extent, from you.
Take a break from negotiating and thinking about what will happen when your employer says yes. Are you really ready financially to retire for a short amount of time? Follow these tips for financial planning before you rush off on your big adventures to make sure you have a rich and rewarding mini-retirement.
How to Save Money for a Mini-Retirement
Kelly Klingaman, a financial planner and founder of Kelly Klingaman Financial Planning, told GOBankingRates about the growing trend of mini-retirements among millennials who want to retire. Klingaman has two friends who are taking short breaks from work right now. One of them calls it their “adult gap year.”
If you really want to stop working for a year, you need to start making plans. In the end, Klingaman said that even though many companies offer sabbaticals these days, few, if any, will pay employees who want to take a year off to pursue other interests. You are the only person who can plan for a mini-retirement.
Start making plans 6 to 12 months ahead of time.
Klingman said, “If you’re serious about an adult gap year, like traveling the world or seeing if your side job could become your full-time job, you should start planning at least six to 12 months in advance.”
If you want to save money for a mini-retirement, you shouldn’t take money out of your retirement savings. If you take money out of these accounts before you are old enough to do so, you will have to pay penalties.
According to Klingaman, financial planning will require a disciplined approach. You’ll need to save money in a high-yield savings account at the very least. This is supposed to fill in the gap between your paychecks.
You’ll also need a fund for unexpected costs. This should be enough to cover your living costs for three to six months, just in case something unexpected happens soon. If you already have these funds, you’ve made a strong base for your future mini-retirement.
Set up a separate account for saving.
We’re still not done figuring out how to pay for a “mini-retirement.” Klingaman says that once you have an emergency fund and cash savings, you should start separate savings account for a mini-retirement.
Klingman said, “The exact amount you put into this fund would depend on how you plan to spend your time off.” “It might be as easy as saving up a year’s worth of living costs if you plan to keep living pretty much the same way.”
People who want to use their money in a very different way during their mini-retirement should start to think about what they want to do and then make a general plan. For example, people who want to use their mini-retirement to travel the world will need to find out where they want to go and how much it will cost to get there and stay there.
plan for your health insurance.
If you take a mini-retirement, your paychecks and health insurance will stop for a while. Klingaman suggests making plans for how to keep health insurance coverage to avoid the lapse. You might be able to use COBRA, a plan from the health insurance marketplace, or your partner’s plan.
Planning for Retirement, Even in a Mini-Retirement
Even though a mini-retirement is short, it still takes up a year of your life. If you take this year off from work, you won’t be able to put money into investment accounts like your 401(k) plan.
Ask yourself if your investment plan is still on track to help you in the middle and long term, even though you haven’t put any money in for a while. If the answer is yes, you should be able to continue with your plans. If not, you might need to find a way to deal with this. How critical it is to plan ahead.
It’s not easy to save money for a “mini-retirement.
” The act requires you to be very familiar with how you already spend and save money. But you can still do it if you are willing to put in the work and know that the end result will be a fun and comfortable mini-retirement.
“Putting tighter limits on your variable spending can help you save money faster so you can take time off work,” Klingman said. “Setting up ways to pay yourself first through direct deposit into a high-yield savings account will also help you reach your goals faster.”
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