We have talked a lot about being able to retire completely i.e. never having to work again.
But what if you don’t want to retire completely; what if you just want to take say a year off?
Introducing the idea of mini retirements: taking a long amount of time off every few years.
A mini-retirement is a form of retirement where you take some time off every few years.
This could be taking a year off every 4 years to go travelling or pursuing other adventures.
To do so, you need to invest enough money that you can live off for your mini retirement.
Once the mini retirement is over, you work for the next few years until you can retire again.
In this article we go through the example of a family looking to retire for a year every 4 years.
We discuss how much they could save every 4 years and how long their money could last.
Finally we discuss how long they’d have to wait before they could repeat the process again.
Is a Mini Retirement the same thing as a Sabbatical?
In theory, yes they are the same concept: an extended period of time away from your work.
However, they differ in a few aspects (assuming you are an employee and not self-employed):
- Sabbaticals may or may not be funded by your employer, or may be partially funded by them.
- Sabbaticals may not be offered by your employer; they tend to be offered to university staff.
- They may be offered after say 7 years of full time work with the employer; that’s a long time.
This is how mini-retirements differ to sabbaticals: they are completely on your own terms:
- You are planning to fund your mini retirement privately with your own investments.
- You can negotiate with your employer that you want the time off but come back to work.
- You can negotiate when and how often you want to take time off.
Because you’re planning to fund it privately, you can afford to negotiate more with them.
Let’s make some Assumptions
There are some assumptions we have to make as seen in the MYB Early Retirement Calculator.
Say this family (both the adults) are 30 years old and want to mini retire when they turn 35.
That means this couple has 4 years to save and invest so that they can retire in their 5th year.
The next variable to think of is their starting amount: are they starting from 0 or with savings?
For this example, let’s assume that they are starting off with a decent lump sum of £5,000.
The next thing is to figure out how much they’d be able to deposit a month: £500, £1000, etc.
In this example, let’s say they’ll be able to contribute a reasonable amount of £500 a month.
Finally, how much growth can they expect from their investing? This depends on their funds.
Let’s say they invest in index funds and over 4 years they have an average 10% annual return.
Now that we’ve plugged in all the variables, time to see how much they could have in 4 years.
How much Money could they have in 4 years?
The other thing left to discuss is how much money they’d need during their mini retirement?
Let’s say that they expect to spend around £3,000 per month or around £36,000 in the year.
That means that their investments need to worth at least £36,000 by the end of the 4th year.
Another thing to mention is the type of account they invest their money in: ISA, pension, etc.
If they were to invest in a SIPP/pension, they won’t be able to access the money until age 55!
That’s why they’d need to invest in an Individual Savings Account (ISA) if living in the UK.
So without further ado, how much money could they potentially have after 4 years investing?
As we can see in the image above, this family could potentially have £37,951.10 after 4 years.
This means that this would be sufficient for them to take a mini retirement for an entire year!
Not only that, but they may even have an extra £1,951 just in case of emergency expenses.
Play around with the Variables
The beauty of this Early Retirement Calculator is that we can play around with the variables.
You may notice that there are factors that we can control and factors that we can’t control.
For example, you can’t control the returns of the stock market: these 4 years may be terrible.
Even if the past years had returns of 20%, past performance is no guarantee of future results.
All we can do is play around with different index fund return scenarios, and hope for the best.
However, what we can control is how much we contribute to our investments every month.
If we contributed £500 a month for 4 years and had average 7% returns, we’d have £35,000.
Now if we contributed £1,000 a month for 4 years with 7% returns, we could have £63,000.
That’s enough to mini retire for almost 2 years, even if stock market returns aren’t that great.
As long as you are contributing as much as you can, your chances of success are much higher.
Try Mini Retirement and See if you Enjoy It
Why wait until you are in your 50s or 60s to get a taste of retirement?
Why not try retirement while you are young and healthy and see what life could be like?
After going on a mini retirement, you may say: I love this life, I want to stay retired forever!
Or after your mini retirement, you may say: I hate this life, I much prefer going to work.
Either result is fine, but you won’t know until you actually try: up to now it’s just a hypothesis.
It’s only when you test out your theory in the real world would you know if it’s right for you.
- Maybe you want to take your mini retirement and go back to further education for a year.
- Maybe you want to take your mini retirement and live abroad in South East Asia for a year.
- Or maybe you want to use your free time to pursue your venture full time for a year risk free.
The best thing about a mini retirement? You can repeat the whole process again in 4 years!
If you’re interested to find out more about early retirement, check out: Quit Like a Millionaire.
In this book, the authors talk about how they were able to retire completely in their thirties!
To find out more on investing and retirement, check out my investing and retirement articles.
I talk about early retirement strategies, which funds to invest in, and which accounts to have.
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