Enjoy now, Retire (a bit) later: Sabbatical musings

Do you know the frequency illusion? It is a concept in psychology that describes, for example, once you purchase a new car you start seeing it everywhere. It is also called the Baader-Meinhof phenomenon but well, I guess “frequency illusion” was a better idea from a marketing point of view.

Last week I might have fallen for it, I had the impression I was reading the same subject everywhere. It started with Ben Carlson and his post about anticipated regret: how we need balance in life and how elusive actually it is to achieve it. We have to be risk averse but we cannot be too much risk averse, spending habits included.

BankerOnFire pondered on the same topic with a real-life story: he (finally?) bought the sports car he would have liked to drive when he was younger, only to realise that it just does not feel the same [20 years later].

And to the extent you are not being fiscally irresponsible, there are things you absolutely need to experience when you are in your twenties and thirties (and possibly forties!) – because they will never feel the same again.

This part reminded me of the reaction I had when I discovered that there were young people out there earning six figures salaries and living like someone in my grandma’s stories about life during WWII (I’m looking at you, OG FIRE lads). Didn’t they have a passion or a dream when they were kids?

When I was living a Switzerland, one random Friday I asked a consultant in our office about his plan for the weekend. He told me his girlfriend offered him an heli-ski trip and, while super pumped about it, he was annoyed because he was the only snowboarder in the group. He did not finish the phrase that I already booked a spot with them. I have been snowboarding since I was 14 and I always wondered how great it would be to experience hours of fresh powder without the pain in the ass of having to walk your way up. The price was definitely above my normal budget for a weekend of snowboarding (and in this case, it was hardly half of a day of it) and the experience itself sits in the same category as flying business class: from a frugal point of view, there is no use of spending that much for a slight to irrelevant improvement in service.

Snowboarding is not a cheap hobby even when done like everyone else. And (unfortunately) my guilty pleasures did not stop at snowboarding. I went surfing in Hawaii. I went to Barcelona for a weekend just because I wanted to watch at least once the Dream Team (no, it was not that Dream Team in ’92). For a couple of years, when we were single and by some standards young, I and a friend spent more weekend nights sleeping in hotels than in our apartments. By now you probably understand where I am going: if I saved instead of doing those things, and pushing it the way I did, my saving portfolio would be fatter. I definitely leaned too much on the YOLO side of things but I am happy I realised there are some “now or never” moments that are worth throwing a budget or a plan…not away but at least on the side.

That’s why I was so surprised when I learned that, for some folks, money was not the holdback. I was not expecting my way of wasting money but I was expecting a version of it. Some extreme, and expensive, things for the only reason that I thought each of us would like to experience an ‘exclusive’ version of whatever our passion is.

Stop being so damn focused on achieving early retirement.

With that line from BoF still fresh in my mind, I landed on a great post on kitces.com about Sabbatical Financial Planning. That’s when everything came together: a sabbatical is basically early retirement pulled forward, a super-charged version of “enjoy it now instead of later” that comes with a good dose of additional risks and possible regrets.

Not clear? Let’s dive in.

Sabbatical

A sabbatical is defined as a period of time in which someone takes an extended break from work. The ‘extended break’ can mean different things to different people. While it could mean as little as 1 month for some individuals, taking a sabbatical can run for as long as 6–12 months, which generally carries more substantial financial and career ramifications that require careful planning, especially when extensive travel plans are involved.

The post is written for Americans, folks who have 12 days of holidays per year and normally do not even take them all. In Europe, 60% of the continent does not work the whole of August on a regular basis, obviously we see things in a different way 😉

A sabbatical has to be 12 months, maybe 6 for those who do not understand the risk/reward profile of the deal.

Reward

You get to do something that otherwise would be impossible, given your normal circumstances. I know five couples that took a sabbatical and all of them choose the same experience: a one-year world tour. Some people take a sabbatical to try an ‘unconventional’ career, like pro poker player or streamer, but that’s not what I would consider as the base case. An MBA is way closer than that: for one year you have huge expenses and no income, very low stress and a lot of booze.

You can do the same thing you would do when you are retired, only that it feels better because you are younger. As much as I am saving now for my retirement, I am physically training to be able to do the sports that I love later in life (unfortunately I was not blessed with golf fever). But despite my effort, the reality is that the more time passes, the higher the chance I will suffer an injury that would “untick a box” for good.

Snowboarding and surfing are also great activities to remind you how our society-defined schedule is not ‘fit for purpose’. They require flexibility that hardly aligns with 9-to-5, Monday-to-Friday.

Obstacles

Given my friends’ practical experience, I can confirm that the financial planning for a year without a salary and a lot of travel is not that complicated. At least is not as complicated as basically anything else in planning for a sabbatical.

Think about FIRE in easy-mode. Saving for something that will happen soon, max in a few years, is way easier than saving for a long-distance future. Plus, you are doing it in two. It is demonstrated that people already spend less when in a couple compared to when they are single; here the temptation of breaking your budget is diminished because there is someone else holding you accountable: imagine risking your relationship AND your year-long holiday for another drink with your friends a latte at Starbucks.

Planning an itinerary that so all the places you will visit, at the point of the year when you will visit, have more or less the same weather conditions, so that you can leave only with summer (or winter, if you are into that) clothes, is way harder than saving 20% extra on your budget. Might be a coincidence but all the people I know that took a year off, or thought to, were already on top of their finances. It makes sense, a guy that went deep into debt to buy a sports car is definitely not thinking about leaving that car in a box for a year.

The main obstacle between you and a sabbatical is your job. Unless you are Ma$e, you do not think about leaving a job that you like at a relatively early stage. The only chance is if your current employer allows by contract its employees to take a sabbatical; even if this should be on every company playbook (HR needs a plan for maternity leave, why do not use it for sabbaticals as well?), this option is quite rare…and like maternity leave is more a career killer than the opposite. Then you have to be in a job you are good at, otherwise you can hardly have a salary that allows saving enough for the trip.

The best moment to take a year off is in-between jobs, after you left a company you would have dumped irrespective of the sabbatical plan. But if you are not planning to leave solo, what are the chances that also your travel partner would be in the same situation? From a couple’s point of view, the “low-risk window”, both in well-paid jobs that are willing to abandon, is very narrow. Statistically speaking, just the fact of having a partner at a relatively young age that would consider the plan is already low odds.

Now include in the mix the fact that the couple might want to have kids (good luck if you are a woman, wants a career, and decide to add a sabbatical to possibly multiple maternity leaves) or they already have but is/are too young to make such travel, sprinkle it with the possibility of a relative or a friend they cannot or do not want to leave at that specific moment (like a sick parent), and you have the most complex recipe in the world.

Risk

Changing jobs is risky: as they say, you know what you leave but you do not know what you will win.

I can control my destiny, job-wise, up to a certain point. I get more chances to climb the ladder if my boss leaves than if he does not. The higher I go, the less opportunity there are (a manager supervises X analyst, an Head-of supervises X managers and so on). I worked in pretty small environments (for my field, Corporate Treasury) like Luxembourg and Switzerland: if I wanted a specific job in that specific country, I needed to wait for something to happen in another company more than having the perfect cv for that role. I might think I have the right skill set to easily find a job, and it might be true indeed, and yet I could wait for that job opportunity to open up for quite a long time if I am not willing to change location. Again, if you apply this to a couple, the issue becomes exponentially harder to solve: even if I and my wife are willing to move, if I find a job in London and she finds one in Amsterdam…one of us is going to be really disappointed. All my friends took their sabbatical pre-Covid; it might be that in the remote-working defined future we will have it easier, so far it looks like it is at best sector dependent.

Job searching while unemployed is like having your portfolio in a drawdown: you might find a job tomorrow but the fact that you are not sure about it today, makes it harder to endure. That’s the psychological difference between looking at drawdowns in a backtest and living one: you miss the surety that stocks will see another All Time High. This uncertainty drives the majority of pain and stress.

In one year a lot of things can change: the economy can go from boom to recession. Your specific sector can be hit by an idiosyncratic meteor: look what happened in the last year to crypto and oil. The company that offered you a contractually bound sabbatical might pull an Elon because it started a global round of layoffs: good luck fighting that (stress-free).

You have to find an employer that sees the one-year gap in your cv in a positive neutral way. It is useless to list all the possible ways travelling around the world, meeting people and learning things can help you grow, go and read all the ways women are penalised just for the eventuality that they might take maternity leave. Just factor in pros/cons analysis that you will start from a position of weakness during the interview.

After some years back in the workforce, your career would resume its ‘original’ trajectory; it might even get a steeper angle, if you manage to leverage what you have learned through the sabbatical experience. But initially, for all the reasons listed before, your situation will be likely worse compared to the one you left (while suffering the Groove Armada syndrome, on top): if the resentment for the present would erase the joy of the past, you lose all the benefits of your choice.

The Solo Trip

I have some acquaintances that took a long trip alone. Usually, more than one. Fact is, it has never been a sabbatical for them, it was their main life plan. They knew the 9-to-5 office life was not for them so, they looked for something else.

The solo trip is doable, and timing-wise easier to organise, but I would guess it involves a character that fell into a sort of soul-searching phase of their life and finds the strength to react to it…instead of buying a Porsche. We would probably live in a better society if it happens more often but it is a fringe case at best.

How many years in early retirement would you trade for one year now?

Planning for a sabbatical many years in advance is a sucker bet. It’s like if an 18-years-old and single would proclaim they will have their first child when they are 30. As John Lennon put it: “life is what happens when you are busy making other plans”.

Technically, anyone can do it at any time, provided they managed to save something previously. If you go on and spend the year off on a tight budget, maybe AirBnB-ing your place while you are away and couchsurfing, you do not even need that many savings.

But in the more realistic case, a lot of planets have to align to make it happen and be a positive experience. I like to think about it more the other way around: be conscious that a sabbatical can be feasible and act on it if the conditions present themselves and you are up to it.

I know a family in Switzerland that just came back from a year travelling around the world. They are a family of 4, parents in their late 40s and kids 13 and 12 yo. Wife left her job four years ago due to burnout; after some time off, she tried to find another job unsuccessfully (yay Switzerland! A country with below 3% unemployment but…there are a lot of fine prints in those stats). Husband had a sabbatical clause in his contract so, after some planning, off they went: and they had a blast!

They did not plan for it ages in advance, it was closer to a when life gives you lemons, make a lemonade decision. I did not ask for the financial side of the plan, as far as I know they were living a normal mid-class life, but you have to consider that the average monthly budget in Switzerland converts to the lifestyle of the rich and famous in most other countries, especially now with the CHF so strong.

The kitces.com post offers a great way to think about the decision of taking a sabbatical from a financial point of view, especially for a family planning to retire early: how many years of early retirement it will cost to take one year off now? As in the post example, sometimes the decision is almost a no-brainer: taking a year now for just a year later is a great trade. Imagine how many families are in the same position but they do not know because they never did proper financial planning (FIRE or not FIRE).

As BankerOnFire suggests, also the decision of NOT taking a sabbatical has its own risks. You might be hit by a bus tomorrow. A member of your family can have an incapacitating injury. Travel can become a nightmare because more Governments decide to reap the same benefits of Brexit. Never underestimate how nonsensical things can get, we might have passed peak freedom of travel, look at Russia or Hong Kong (China).

Taking a sabbatical earlier might feel cheaper, you do not have yet issues backpacking and sleeping with strangers, but the money you spend would have compounded for longer. Plus you are still close to those freedom years at university, how much peak “utility” would you get out of it? If you take it later, kids might be involved…a blessing and a curse 😉

[What about me? I have passed a couple of opportunities in the past of going solo, mainly because I am a chicken and definitely too risk averse in that context. Now with a 3 yo and a newborn…the opportunity window will re-open in at least 4 / 5 years, will see]

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