Financial experts weigh in on pros and cons

Jon Okafor reduced his sunk costs to help fund his micro retirement — Photo courtesy of Jon Okafor

If you’re one of the 51% of Americans who report feeling “used up” at the end of the workday, the weekend — even a long one — may not be enough to make the Sunday scaries go away. And given that a report from the International Labour Organization suggests that Americans work more than employees in other developed countries, it’s no surprise that a growing number of folks are choosing to take a micro retirement, or mini retirement, in the midst of their careers.

Whether you’re hearing the term for the first time or have been considering it for a while, here are 10 things financial experts want you to know about the micro retirement trend.

Micro retirements are extended periods of time away from work before exiting the workforce

Similar to a sabbatical, micro or mini retirements are non-permanent breaks from the workforce that might last anywhere from a few months to a few years.

“A micro retirement is more extensive than a vacation,” says Andy Baxley, founder of Chicago-based Two Trails Financial Planning. “It’s meant to be an opportunity to experience the full benefits of retirement, often well before you’re ready to commit to leaving the workforce entirely.”

A mini retirement can boost your physical and mental well-being

While a mini retirement might just sound like a (very) long vacation, experts say this isn’t the case.

“Unlike a typical vacation, which is usually shorter and centered around relaxation, a micro retirement offers a more profound pause from work, allowing individuals to pursue deeper personal fulfillment without waiting until the traditional retirement age,” says Troy Nelson, a financial advisor at Brighton Securities. “Micro retirements remove the immediate pressure of a work return, offering a deeper sense of freedom.”

Folks of any age can take a micro retirement

Whether you’re in your late 20s or early 50s, with the right amount of planning, it’s never too early or too late to take a micro retirement. Jon Okafor, for example, took a mini retirement from a career in finance to spend two months in Peru.

“I explored the Sacred Valley, pet llamas, and hiked Machu Picchu,” he says. “When I came back, I felt like I had a lot more clarity in terms of what was important to me and what I needed to prioritize, both on a personal and professional level.”

Jon took a mini retirement from his career in finance to explore Peru and reassess his professional goals — Photo courtesy of Jon Okafor

While folks in their 50s or 60s may be closer to true retirement, this doesn’t preclude them from taking a micro retirement. In fact, experts note that individuals who are more established in their careers may have an easier time taking an extended break.

“For our older clients, we find that future career advancement opportunities are typically no longer a concern,” says Ryan Nelson, a lead wealth advisor and founder of RLN Wealth in Plymouth, Minnesota.

Prepare well in advance of a mini retirement to ensure financial stability

While being spontaneous can be fun, a true mini retirement tends to be most enjoyable with advance planning.

“This means having enough cash to not only cover the full period of your planned micro retirement but also some buffer if you need to search for new employment after that period is over,” says Baxley.

For Okafor, plans for his micro retirement commenced after receiving his annual bonus.

“I knew I would likely have a financial cushion after our year-end bonuses were paid out, and I planned for my trip to start about a month afterwards,” he explains.

Develop a savings plan to finance your mini retirement

According to Nelson at RLN Wealth, this might include temporarily halting or reducing retirement plan contributions and instead redirecting savings to a micro retirement fund while still at your current job.

“I typically recommend reducing contributions to a level that still entitles clients to receive their employer match,” he says.

That said, a key risk factor in taking a micro retirement is diverting these types of contributions.

“Taking a break from work halts contributions to accounts like a 401(k) or IRA,” warns Nelson at Brighton Securities. “This not only pauses contributions but also limits the compounding growth of those investments, which could significantly reduce your retirement nest egg over time.”

He says individuals should be aware that missing even a few years of contributions “can result in needing to extend your working years to compensate for the shortfall.”

Do your best not to touch your long-term nest egg

Speaking of nest eggs, Kate Goesel, a certified financial planner with Schwab Intelligent Portfolios Premium, suggests having a nest egg that is invested for the long term in low-cost, broadly diversified exchange-traded funds (ETFs), as part of a mini retirement planning strategy.

“Especially in the early years, this long-term portfolio does the work while the account owner takes the break, thanks to the beauty of compound interest,” she says. “This nest egg shouldn’t be touched while on the break and should only be used many years later when the account owner is no longer working.”

Prepare to execute tax strategies in a low- or no-income year

Tax strategies typically include Roth conversions and capital gains harvesting, says Nelson of RLN Wealth.

“High-income earners who suddenly drop to a low-income tax rate due to a micro retirement are prime candidates for Roth conversions,” he says. “This is a tax strategy that allows individuals to voluntarily generate taxable income by moving pre-tax retirement funds to Roth accounts. The advantage of this strategy is you are paying tax on the conversion at a significantly reduced rate, and the converted amount can then grow tax-free while also being shielded from eventual required minimum distributions.”

Those considering a mini retirement need to look at tax strategies for the year(s) when their earnings will be less — Photo courtesy of urbazon / E+

Capital gains harvesting can also be a valuable strategy. “This tactic allows taxpayers to recognize long-term capital gains up to a certain threshold — up to $94,050 for married, filing jointly, in 2024 — at 0% capital gains rates,” he says.

Aim to reduce sunk costs or find someone to take them on

To prepare for a mini retirement, Goesel suggests that folks consider their sunk costs. Sunk costs are expenses that have been incurred already, like car payments, student loans, rent, or mortgage.

“Find someone to live in your house and assume your mortgage or lease for the period you will be traveling,” she says.

Okafor, for example, sublet his apartment for the time he was out of the country, and he rented out his car under the auspices of a car-sharing service.

Make sure you have health coverage during your mini retirement

Nelson at Brighton Securities notes that health insurance is a key consideration in planning for a mini retirement, whether your time off is spent domestically or traveling abroad. He advises negotiating with your current health care provider or finding a new plan altogether.

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“Consider enrolling in the government’s health insurance marketplace at Healthcare.gov if you can’t retain employer coverage,” advises Goesel.

Keep in mind that a micro retirement may affect your career trajectory

“While stepping away from work can offer a chance to travel, pursue education, or simply take a breather to prevent burnout and shape future career goals, stepping away from your job too soon could disrupt momentum or promotions,” says Nelson at Brighton Securities.

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As such, if you want to stay in the same field or even with the same company, having a clear conversation with your current employer about what follows your micro retirement is key.

While Okafor leveraged his micro retirement to transition away from his employer, others may want to return to the same company or line of work. Consider whether your employer will have opportunities for you after your time away, and, if not, whether you’re prepared to search for employment elsewhere.