RETIRE IN YOUR 20S? 7 STEPS TO A MINI RETIREMENT
Written by Alli, scroll to bottom for video
A few weeks ago at Fincon 2018 in Orlando, Florida, we gave a breakout table session on how to financially prepare for a mini retirement. If you are interested in leaving your job and traveling for a set period of time and aren't sure how to financially prepare, this blog post will lay it all out for you.
There's a lot of reasons that you might want to leave a job but the most common is that you're not happy with your current job or you dislike your location. Maybe you want to spend more time with your family. The main thing that holds people back (maybe this is you) is that they lack confidence around money. Do I have enough money to make it through? When I return back will I be able to find work easily? All your questions will be answered here.
We SO know the feeling of going to your 9:00 to 5:00 every day feeling dissatisfied, disillusioned, stuck. We were those people just six months ago before we left our jobs. Going through the steps that we are going to show you really prepared us and gave us the confidence to quit our jobs. We educated ourselves and eventually ended up saving 70% of our incomes right up until the point we quit. We made a plan to travel the world and experience new things. We also created a framework with backup plans so that we knew we had the confidence that if something didn't work out the way we expected we'd still be secure in our future.
So, what is a mini retirement?
We defined a mini retirement as taking a specified period of time off from your current employer. You could be either looking for a new job, looking to find a new passion, building a business, travelling, or spending time with family.
7 STEPS TO A MINI RETIREMENT
1. Get really clear on why do you want to take a mini retirement.
Your WHY will lead you through the hard times and the sacrifices that you have to make to financially prepare for this. Maybe your why is that you dislike your job or maybe your why is that you want to travel before you settle down and have kids. Maybe your why is you want to start a business and venture out on your own in an entrepreneurial fashion.
What is your why?
2. Decide what you want to do during your mini retirement.
A lot of people want to take some time off of work, maybe they want to transition to a different job, take some time figure out what they would like to do when they come back to work. Some people want to spend time with their family, but to go back to the same work that they were doing. Some people plan to start a business and never return to 9-5 work like us. All of these things are important to figure out so you know what your activities are going to be like when you're on your mini retirement.
What is your what?
3. Reverse engineer how much your expenses will be.
If you're planning to travel the world during a one year sabbatical your expenses might be kind of high. You will have to pay for a lot of airfare, a lot of travel and everything else while you're gallivanting around the world. If you're planning to stay right where you're are but really buckle down and work on some businesses you might be able to drive your expenses pretty low. It's important to have this number in your mind so when you reach mini-retirement, you’ll be confident and ready.
How much will your expenses be?
4. Decide the duration of the travel or the mini retirement.
If you want to travel for a year then you can calculate how much you will need exactly for that year. For example, if you're looking at staying home and buckling down on your businesses, you know from the past few steps that you only need $24,000 to live where you are currently living. We recommend saving 10% more to give you some cushion so you feel SUPERCHARGED confident. Obviously just multiply the amount of your expenses by how many years or how many months you plan to be “retired."
How long will your mini retirement be?
5. Execute your budget and savings plan to achieve your goals!
Once you have that really clear picture of what you need you just have to get to work!
Something to note: how much money you save in cash and investments. If you are saving for a mini retirement, you would want to keep more of that money liquid savings account and in a vehicle that's not potentially going to lose value right before you leave the job. Even though that money won’t make you money right now, we recommend keeping it in a safer investment whether that's bonds or just in cash.
Where will you save your money?
6. Maximize your work benefits
If you have an annual bonus that gets paid out every year make sure that you qualify for that annual bonus and leave right after you get that. Also save up your vacation time so if you are planning on going to travel for a year maybe the year before that don't go on vacation then you'll get an extra paycheck or two when you quit.
Are you maximizing your work benefits?
7. Plan for health insurance
Almost everyone's health insurance is provided by their employer. So if you have anything you need to get checked up on or any health conditions that are outstanding, we recommend trying to take full advantage of the medical care you have right now to get those taken care of. That way, when you leave your work health insurance and transition to a marketplace health plan or a health sharing ministry (like us) you won't need to eat up a bunch of your deductible taking care of things you could have done while you were previously on your employer's health care.
What will you do for health insurance?
What about your retirement accounts?In the US we have an eighteen thousand five hundred limit on our 401ks, so we made sure to max that out before we left our jobs in April of this year.
In case the businesses don't take off, we have backup plans. One of those is that we can get lower paying jobs. We’ve already saved a significant amount in our 401ks. After running some numbers on that we found that by the time we're able to get access to those at sixty five, that money would be able to sustain us for the rest of our lives. So we've almost already assured our retirement just by heavily saving for last four to five years. The other plan is that we have a specific set of skills. We are both engineers so we have degrees that we can fall back on.
The biggest concern with employment gaps would be if you work in an industry where those skills atrophy or where things change super super quickly. In a position like IT, you need a lot of training on the job to stay on top of recent changes whether its regulatory or just technology. In that case, it might be a little bit more difficult to overcome this employment gap. But overwhelmingly, from the research I did, most employers are not too concerned about an employment gap as long as you have a good reason for taking it. So, they're definitely going to ask you if you have a gap of employment but if you're trying to start businesses or something like that, you can always put what you were up to and the activities and projects that you completed on your resume.
Remember that by keeping your expenses really low you can work whatever job you want!
You don't have to go back to that corporate career making six figures or whatever you were at prior. You can work a job that really satisfies your soul and makes you happy. Also remember that your backup plan is everyone else's regular life 😉
You will never have today again or tomorrow or your youth so if you have a desire to go out explore the world, build a business, take your mini-retirement! There's really no better time other than now. But you do need a plan to execute to make sure you're not sacrificing your future for the present. But as long as you do it smart, take some of the advice that we’ve given, we think you can absolutely afford a mini-retirement.