When many learn they can retire decades early with FIRE, one natural response is to hyper focus on their savings rate to reach the finishing line sooner.
But there’s a risk that after decades of pushing to retire early, when you finally reach early retirement it’s not all that you hoped. It might be an idea to take a sabbatical during your working years to test drive early retirement, giving you the chance to learn what routine you like, how you spend your time, and inform what your early retirement will look like.
Let’s see an example of how a sabbatical could impact your early retirement.
Bob wants to reach FIRE as soon as possible, has a high savings rate of 47%, and works full throttle from age 22 until he’s saved enough to cover his expenses and retire early at age 40, taking no breaks in between.
Meanwhile, Alice has the same savings rate as Bob, but decides to take a one year sabbatical during her working years to test drive early retirement, taking a sabbatical 6 years into her career when she’s 28.
Alice will have to work an additional year to make up for the year where she didn’t save money. But she’ll also need to work an additional amount to make up for the the her lower net worth that compounded in the subsequent years. So how much longer does Alice have to work to make up for the sabbatical?
An additional 8 months.
If you’re like me, you’re very surprised at how little this affected her timelines. The sabbatical was a two-pronged attack on her finances, not saving money for an entire year, and withdrawing a years worth of expenses to fund the sabbatical.
How much is a year off, at age 28 compared to age 40. Where you’re more physically able, not constrained by children, have friends that will travel with you.
I’d say 8 months is a pretty good pay off.
And you can continue this multiple times. What if Alice wanted another sabbatical 7 years after the first. How does this impact her retirement?
It adds another 2 months of working.
Alice is still retiring before her 42nd birthday, and she’s experienced 2 years of sabbaticals to learn what early retirement means for her
These sabbaticals get cheaper the later you take them in your career, as when you approach retirement, most of the increases to your net worth come from investments, not from savings.