Can You Afford a Micro-Retirement? Factors to Consider

Imagine taking a long sabbatical after you’re 10 to 15 years into your career so that you can spend a year or two traveling, pursue passion projects, and do things that make you feel fulfilled before returning to the workforce.

That’s the idea behind a “micro-retirement,” a growing trend among Gen Z and millennial professionals seeking better work-life balance long before reaching traditional retirement age. It’s also a strategy to combat burnout.

While the mental health and work-life balance benefits of taking a micro-retirement may be significant, it raises an important financial question: Can you really afford to take time off from work to prioritize your well-being? Start by taking a hard look at your finances.

What Is a Micro-Retirement?

Micro-retirement offers relief from the always-on work culture, giving workers time to pause, reflect, and consider what is and isn’t working in their professional and personal lives.

The idea isn’t entirely new: Author Tim Ferriss popularized the term “mini-retirement” in his 2009 book “The Four-Hour Workweek.” But renewed interest in extended mid-career sabbaticals has grown amid economic uncertainty, pandemic-related burnout, and shifting cultural attitudes toward work.

Younger generations are “challenging the belief that you have to work nonstop until traditional retirement age,” Karla Dennis, founder and CEO of tax strategy agency KDA, Inc, said. 

“Burnout is real, and after navigating a global pandemic, economic uncertainty, and a 24/7 digital work culture, many are realizing they don’t want to wait until they’re 65 to start enjoying life,” added Paul Miller, Managing Partner and CPA at Miller & Company, LLP.

Key Financial Considerations for Planning a Micro-Retirement

Before committing to micro-retirement, ensure you have a strong financial foundation to start with. Consider alternative income sources during your break such as side gigs, freelancing, or renting out your home. Then carefully plan your budget and workforce re-entry strategy to avoid negative long-term financial consequences.

How Much Money Will You Need to Support Yourself?

Your financial plan should cover all your household expenses, including rent, food, insurance, travel, and loan payments—plus a buffer for emergencies and other unexpected circumstances. 

“I typically recommend at least six to 12 months of living expenses saved up, but if you’re planning a longer break, you’ll want to budget more conservatively,” said Miller.

While you can explore passive income streams to keep money coming in, you should try to reduce fixed expenses during micro-retirement, too. For instance, subletting your apartment or bringing in a short-term roommate can help offset some costs and generate income during your time off.

Develop Your Re-Entry Strategy

While you don’t need every detail in place, having a rough timeline of your micro-retirement helps you budget and reduce uncertainty. Consider how you’ll eventually re-enter the workforce, whether it’s through freelance work, returning to a job in your current industry, or looking for something new.

Explore Your Options for Health Coverage

Since health care coverage is often tied to employment, you’ll need a plan for getting health insurance without a job before you leap into micro-retirement. Options include COBRA, Affordable Care Act (ACA) plans or other affordable health insurance coverage, or coverage through a spouse or domestic partner.

What’s Your Tax Strategy?

While a year with little to no income can offer opportunities for tax breaks, such as Roth conversions or capital gains harvesting, the wrong move can lead to negative tax implications. It’s best to discuss your situation with a financial planner and/or tax professional well in advance of your planned micro-retirement.

Save Without Tapping Your Retirement Accounts

Establish a solid financial plan before transitioning to micro-retirement. If necessary, redirect some savings to cover expenses, but avoid making early withdrawals from your 401(k) or IRA unless you fully understand the financial implications.

“Plan micro-retirement like it is a business investment,” Dennis said. “Build a dedicated micro-retirement fund separate from your emergency funds or retirement funds. The more strategic you are, the more you can enjoy it without financial guilt.” 

Long-Term Impact on Your Career and Finances

Despite its potential benefits, micro-retirement can impact financial stability and career growth. It can lead to lower earning potential upon re-entry, a gap in networking, and missed opportunities to climb the career ladder. But it can also slow down savings growth, which can damage your traditional retirement plans or at least temporarily derail them.

“Don’t forget about long-term goals,” Miller warned. “Are you still contributing to retirement accounts? Can your investments keep growing while you’re not earning? A micro-retirement can be liberating, but you don’t want it to derail your future.”

The Bottom Line

More professionals, especially those of younger generations, are recognizing that mental health and well-being directly impact their ability to succeed at work, and combating burnout may mean taking a break from the workforce.

If you don’t want to wait until retirement age to step away from the grind, you can carefully plan for a micro-retirement and take a brief pause from your career. While there may be financial challenges, the time away will likely leave you mentally refreshed and with a new sense of purpose.