Embarking on a “micro-retirement” can be a transformative experience, offering a chance to recharge and realign your life goals. Unlike full retirement, micro-retirement is a break from working with a plan to go back after a set time period.
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This concept isn’t about stepping back entirely, said Dana Ronald, president of Tax Crisis Institute, but taking a strategic career pause, providing new perspectives on both personal and professional fronts. To determine if micro-retirement is right for you, he said it’s important to assess your readiness for a temporary shift in lifestyle and responsibility.
“It’s not only a financial calculation; it’s also about knowing whether a break aligns with your long-term goals and priorities,” he explained.
Below are some clear signs you’re ready for this career shift. And if you are, take a look at some steps you should take to prepare.
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You Have a Strong Financial Foundation
“When I evaluate a client’s readiness for micro-retirement, I look for at least 12 months of living expenses saved separately from their emergency fund,” said Abid Salahi, finance expert and co-founder of FinlyWealth.
He’s found that clients who take career breaks with less than this buffer end up cutting their break short 82% of the time.
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Your Skills Are Marketable
Salahi assesses whether his clients have maintained in-demand skills. Those who successfully return to work after micro-retirement typically spend five to 10 hours monthly keeping their professional skills current.
“I’ve seen this reduce the average job search time by 47% when they’re ready to return,” he said.
You’ve Planned for Healthcare
“In my practice, clients who successfully navigate micro-retirement have mapped out their health insurance strategy,” said Salahi.
He recommended setting $15,000-$20,000 aside specifically for healthcare costs during a one-year break.
Additional Recommended Financial Preparation Steps
If you want a nice long break from work and you have addressed the big challenges, you’ll want to take these steps, as well, to be sure your micro-retirement doesn’t end early because you run out of money.
Debt Management
Salahi advises his clients to eliminate all high-interest debt before micro-retirement.
“My data shows those who enter their break with only mortgage debt are 3.5 times more likely to complete their planned time off without financial stress,” he said.
Income Streams
Salahi has found that successful micro-retirees typically have two to three passive income sources.
“I help them set up dividend portfolios, rental properties or consulting arrangements that cover 30%-40% of their basic expenses,” he said.
Budget Restructuring
“I work with clients to test-drive their micro-retirement budget for three to six months while still working,” Salahi explained. “My most successful clients reduce their monthly expenses by 25%-35% before their break, creating a financial cushion for unexpected costs.”
Career Re-entry Strategy
Salahi has seen that micro-retirees who maintain professional networks during their break find new positions 58% faster.
“I encourage my clients to schedule quarterly coffee meetings with key industry contacts throughout their break,” he added.
Investment Reallocation
Before clients take their break, Salahi helps them adjust their investment mix. His typical recommendation is shifting 15%-20% of their portfolio to more conservative investments during the micro-retirement period.
A Real Success Story
“I recently worked with a software developer who took a 14-month micro-retirement,” Salahi explained.
Together, they prepared for two years, building passive income through rental properties and dividend stocks that covered 45% of her expenses.
“She used the break to travel and learn new programming languages,” Salahi said. “When she returned to work, she landed a 22% higher salary than before her break.”
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This article originally appeared on GOBankingRates.com: 3 Signs ‘Micro-Retirement’ Is Right for You — And How To Prepare Your Finances
