Financial planning almost always means retirement — the big stop at the end of a career. But in a survey HSBC published in September, 37% of the Americans polled had a nearer one in mind: a “mini retirement” of six to 12 months, ideally starting around 46.
“Wealth is about freedom, choice, and purposeful living,” said Racquel Oden, HSBC’s U.S. Head of International Wealth and Private Banking.
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Of those worldwide who’ve already taken a mini retirement, 87% said it made their life better. But those surveyed are comfortable people: 10,797 investors across 12 markets, everyone holding between $100,000 and $2 million.
Many still get cold feet about actually taking a mini retirement. Four in 10 expect the break itself to cost less than $100,000, but they still want about $530,000in the bank first. Still, with several months of expenses, health coverage and a way back into work, $530,000 can start to shrink fast.
How much you need to save depends on how long you’re off work
Start from what you spend and not from what feels safe. For instance, if your household costs $5,000 a month and you want to take eight months off, you need $40,000, or closer to $50,000 once you allow for the job hunt on the other side.
Save toward that over three years and you’re moving about $1,400 a month; give yourself five and it falls under $850. This is the same goal-setting you’d do for retirement, just run over three years instead of 30 — and that’s the whole trick of it.
But James Hargrave, a CFP who runs Pillar Financial Planning in Raymore, Missouri, sees a different blind spot: Clients budget to replace their paycheck but never think about how they’ll fill the days.
“Some clients simply want to slow down,” he told Moneywise — read, exercise, see friends — and that mostly fits inside what they already spend. It’s the big travel plans that blow estimates.
Then there’s where the money sits. Your 401(k) is not the pot to draw from, because the IRS charges an extra 10% on early distributions from a 401(k) or traditional IRA before 59½, on top of the income tax you already owe.
If the break is inside two years, high-yield savings is fine. Beyond that, a taxable brokerage account will grow your money without locking anything behind a penalty, though you’ll owe capital gains tax when you sell.
