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There’s a better way to Retire today

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last updated June 23, 2019

Introduction

Why I gave up on traditional retirement, and early retirement too

It was around the time that I was hustling into my mid-30s that I found myself at a low-point, struggling with constantly feeling stressed and busy yet simultaneously unsatisfied. I had been lulled into the typical American lifestyle: work more, spend more, and constantly strive for the next big thing. It didn’t take long for all of my time and money to be spoken for (sometimes multiple times over).

After cancer struck both sides of my family, I was struck by the fact that tomorrow is not a given. After witnessing the financial and health tolls of this merciless disease, postponing so many of my interests in life until an eventual traditional retirement seemed like an ill-founded plan.

The 3 story house with a yard, 2 cars, latest tech in my pocket, eating out 4 days out of the week, etc suddenly became much less important. In fact, it all felt more like a burden. The comfortable consumer lifestyle I led was something that constantly needed to be maintained. It was keeping me from my real aspirations of fostering deeper relationships, having greater impact on the issues I care about, and experiencing more of the world. I wanted to free up enough space to explore new ideas and pathways to building real, long-term wealth.

So, I hopped on the financial independence retire early (FIRE) bandwagon with dreams of ultimate time and financial freedom. I ruthlessly slashed expenses and sold the stuff I didn’t use (and even convinced my wife to do the same). After a little while, it became clear that even if I saved 60% of my income and lived a ridiculously frugal life, I was looking at another 8+ years of the daily grind. It wasn’t long before constant penny pinching and attempts at a fully optimized life led to burnout.

I needed another pathway to freedom. But, I didn’t have any great ideas aside from the travel blog porn that I thought represented the lifestyle I wanted to live (but couldn’t figure out how to achieve). But my mind was made up. So, right in the middle of my career, with a little bit of savings, I uprooted my (mostly) successful routines to re-energize and find new inspiration with a sabbatical.

I knew having “skin in the game” would force me to take calculated risks. I didn’t know that most of my assumptions about personal finances and my financial fortitude would be called into question repeatedly in the coming months and years. What I’ve learned from this experience makes me feel stronger than ever that, even in our increasingly frenzied world, it’s possible to carve your own path and live a life of greater freedom and enjoyment today.

This guide captures my journey to breaking the mold of traditional perceptions of money and personal finance habits. The core wealth building principles can be used by anyone who makes a moderate income and is willing to put in the effort to build a lifestyle of freedom for exploration, rejuvenation, and enjoyment.


 
Let’s walk together along the journey to meaningful wealth building with a retirement plan that makes sense in the 21st century!
 

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Table of Contents

 

As you can see, a lot is covered in the upcoming sections. But the most meaningful question to answer is, “what topics interest you?” As you think through your transition to a more meaningful work-life balance, reach out and let me know what would be most helpful for you!

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Retire Early, Retire Often with Sabbaticals

Being human means we find comfort being with the crowd. Our instincts steer us along the path shared by those who precede and surround us. Following the career crowd leads us to displace our own goals for what others think is most important. And, until recently, I was no different.

The first three-quarters of my career was spent doing what a lot of ambitious, young professionals do: I set aside my individual interests to work 60+ hours per week to achieve my “potential”, in lieu of everything else. Then I spent that financial success ‘keeping up with the Joneses’, buying the things that helped me to look the part of that successful professional. It’s a self reinforcing cycle. One that I found overwhelming and unfulfilling.

When I finally stopped to think critically about why I was feeling adrift, I kept coming back to the reality that I was confusing others’ ambitions as my own. I was working hard to accomplish goals set by someone else at the expense of investing in myself. Was this going to continue for the rest of my career (and beyond)?

How many people do you know who retire at 65 feeling like they’re ready to take on the world or do all of those things on their ‘bucket list’? To the contrary, most people hit that “magic” net worth number feeling exhausted. Then, after a much needed period of doing nothing, they start going down their list and say things like, “I should have done this sooner.”

The truth is that happy retirement is a fairytale too many of us believe in, and retirement as an end is the antagonist to living a fulfilling life today.

Redefining Retirement for Today’s Generation

A quick trip back to the industrial age takes us to the origin of modern American retirement. Work during this era was largely about trading physical capital for a paycheck. As life expectancy was increasing, but health still limiting, governments and corporations began urging that later years be spent off the clock.

The point is that the resources we use today to help calculate how much we need to retire, manage our expenses and live off our savings are based on a model that’s outdated!

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The economy of the 21st century is very different from the late 19th and early 20th centuries. The industrial revolution has given way to the information and knowledge revolutions. Most assembly line jobs are being filled by robots while human workers are increasingly disengaged. And sixty is considered the new forty.

Even though we are wealthier today than ever before, misguided financial goals make it nearly impossible to find the peace of mind about our money and fulfillment in life that we deserve. So what’s a young knowledge worker to do?

Time is our most precious resource. Time is the only variable that cannot be earned back. Yet the value of our years is completely neglected in traditional retirement plans.

Retirement has been defined by employer-established motives for too long. We are no longer climbing career ladders, we are advancing along different paths and have the power to rejuvenate and reinvent ourselves along the way. This brief walk down memory lane is a wake-up call that the time to learn from and improve on the past is now.

We don’t have to wait to enjoy retirement—and we shouldn’t. So, start by updating the way you evaluate success: swap out corporate promotions to prioritize personal development goals and cut that big fat retirement into bite-sized mini-retirements.

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Sabbaticals give us a chance to migrate between (mind-numbing) routine and experiences that spark personal growth.

The new retirement can be defined and spent on what we want to do at different stages in our lives—whether that’s taking a break to travel for adventure and the creative boost of living abroad, having more time to grow that side-hustle into a sustainable business that transitions to a new career, or simply spending more time at home with family and friends.

Redefining retirement means pursuing what fulfills your version of freedom.

The Financial Trade-Off Of Taking Sabbaticals

Mention taking extended time away from work and the first thing you’ll hear is criticism about how you’ll destroy your career. That’s what I heard from almost everyone that I talked to about my plans. But what does incorporating sabbaticals into your financial plan really cost?

Here’s an example of the back-of-the-envelope analysis I did to understand the impact of my personal financial freedom plan to take a 1 year, unpaid sabbatical for every 5 years of work.

A few starting assumptions to get us started:

  • Earn $100k per year and save half of it (for simplicity sake, we are ignoring taxes and tax advantaged savings)

  • 5% inflation-adjusted growth of investments

  • 4% investment safe withdrawal rate

  • Spending stays constant at $50k annual during mini-retirement years

First, if I were to work straight through (ie no sabbaticals), with earnings and spending staying constant, I would end up with $1.25M after just over 16 years. Using the 4% safe withdrawal rule, this would afford me $50K of spending annually ($1,250,000 * .04 = $50K) in perpetuity.

 
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But taking time off from work would significantly impact that financial trajectory, right? Let’s look at the impact of taking an unpaid gap year after every 5 full years of work- starting in year 6, then another in year 12, and another in year 18.

At the end of Year 5, my net worth is $283,189. I take year 6 off, continuing to spend the same amount as I did while working — $50K.  I also earn 5% from my current investments — a little over $14K. At the end of year 6, my net worth is now $247,348. I go back to work, earn the same salary, and continue to save half of what I make. Rinse and repeat in years 12 and 18. At the end of year 21, I’ll have $1.34M.

 
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So what’s the financial impact? In this simplified example, my sabbatical plan will require 21 years to achieve over $1.25M in retirement savings, as opposed to the 16 years in the work straight through scenario. That’s 5 additional years, but keep in mind that 3 of those years are entirely work free. That’s time to rejuvenate, pursue personal interests, and solidify my own path. Seems like a good trade-off to me!

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The Goals-Based Financial Formula That Makes Sabbaticals Possible

A few short years ago, there’s a 99% chance the following thought crossed my mind at least once per week: “When I have more money, I’ll…spend more time with friends and family; go on a 3 week vacation; be able to get a good night's sleep, etc.

Money was an easy excuse for not pursuing my true interests. It was also a culprit for feeling like I never had enough. When having more money was the ultimate goal, satisfaction from what I could afford often got pushed to the wayside. Once I realized sabbaticals were a long-term and financially viable option for fostering greater fulfillment and meaning, I uncovered one major money mistake that was behind the scenes secretly crushing my motivation and enjoyment!

The Trouble With Big Fat Financial Goals

When it came to saving money, I only had a few financial goals in life: pay off school debt, buy a house, and retirement. Even when I put aside some extra cash to make other bigger purchases along the way, it was rarely tied to an actual financial plan with well-defined goals or an understanding of if/how it would enrich my life. As a result, I found myself in a cycle of (over)investing time to make enough money for today and striving to fund sweeping long-term financial goals that lacked clear value.

When ‘more money’ becomes the goal itself, then that’s what we’re always working toward. We get caught in an endless chase for the next dollar. This paperchase is stress inducing and kills day-to-day enjoyment.


Rethinking retirement meant that I could replace the biggest (and most ambiguous) financial goal of my life with sabbatical milestones. The milestones were divided into tangible goals directly tied to how much I really needed to make them possible. Adjusting my mindset to treat money as a tool for achieving my tangible goals (re)focused my attention on what really motivates me.

Behavioral Impact of Goals-Based Approach to Retirement

Psychological studies have tested goal-setting theory and show that we are more motivated by relevant and tangible activities rather than abstract numbers. Yet the majority of people have a retirement plan that’s broad and based on an ideology formulated by someone else. When the freedom to retire relies on working 30+ years to become a millionaire and live happily ever after, the success of your financial freedom plan is contingent on maintaining willpower for the long-term.

The downfall of traditional retirement plans today is that they always seem beyond grasp and are not aptly aligned with current realities of job security, limitations of healthy aging and the inevitable curveballs that life throws at you. We have more success saving for retirement when there’s a clear purpose for the wealth that’s being built, and we can take the time to enjoy life along the way. sabbaticals can be used to break up the decades-long grind of work (and the stress that goes with it) with periods of purposeful personal growth and rejuvenation.

While everything in life requires some tradeoffs, a goals-based approach to money management provides the freedom to be more intentional and content with how we make them.
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Allocating resources to planned sabbaticals from a regular work routine changes thinking about money as ‘the goal’, to ‘money as a tool’ to help achieve our nearer-term interests in life. It reduces the likelihood that we quit because the finish line seems too far away. Additionally, it serves to minimize the regret of not doing what we want if an unexpected health issue or other longer-term uncertainty rears its head.

The bottom line is that with proper sabbatical goal-setting, you will boost your likelihood of achieving your personal ambitions, big and small. Setting sabbatical goals lays the foundation for shaping an ideal lifestyle that incorporates time for personal interests, not just the ambitions of employers and others that surround us. And if you do it well, you will have clearly defined action steps that will get you there.


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The Financial Formula For Achieving Your Sabbatical Dreams Today

Stepping off the traditional retirement path and hiking into a sustainable sabbatical is a journey that’s often held back by money worries: how can I possibly afford to quit my job? How will I pay the bills?

These are legitimate concerns that should not be overlooked. But, it’s too easy to dismiss the possibility of sabbatical freedom without actually doing the math. Crunching the right numbers will help reduce financial anxiety with tangible dollar figures allocated to making sabbatical goals a realistic savings target.

The sabbatical financial formula outlined here is what I use and has proven effective in successfully taking the leap:

Start-Up Costs

With a vision for a fulfilling sabbatical in place, the first reality check that will propel you from daydream to doing is calculating how much you need to put in a (liquid) “start-up” fund. For example, if long-term travel or volunteering abroad is part of your plans, estimate the expense of just what you need to get you there: do you have to buy plane tickets or are you road-tripping in a vehicle you already own? Will you be lounging on a beach in minimal wardrobe or do you need to invest in hiking poles and a good pair of trail shoes? Will you be in a place where you’re covered by your current healthcare or do you need global insurance?

Word of caution here: this is a point where our dreams can quickly become too dreamy. Social media especially have a way of influencing us into believing that everything should be epic. And human nature can lead us to over-prepare when we don’t really know what to expect. Start a list, and remember to be pragmatic about what you really want and how much you really need.  If an item remains on the list for at least a couple months, and research indicates it’s a valuable investment to begin your sabbatical, then include it as part of your estimated startup cost.

Repatriation Fund

Taking the leap to a sabbatical can be nerve-wracking. Heck, eliminating income at any age is a source of anxiety, even when the numbers show we are well prepared. A great way to alleviate these concerns is to give yourself a cash cushion that will be there to keep you comfortable you when you’re ready to “repatriate”.

So ask yourself, “how much time do I need to re-establish steady cash flow after a sabbatical?” A general rule of thumb is that it can take 3 to 6 months to find a new position, if you’re aiming for full-time employment.

Rather than having to return home desperate for income—and living in a van down by the river—you’ll have savings available to cover your living expenses during your job search period so you can ease back into a “normal” routine. Plus, any repatriation funds that are not spent can be a bonus you pay to your future self by allocating them to make your next sabbatical possible even sooner :)

Monthly Burn Rate

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The term burn rate is typically used in the context of corporate accounting to refer to the amount of money a company is spending on a monthly basis. But, this is also one of the few data points that is actually worth your time and effort to track in individual and family finances. Especially as part of a sabbatical plan, it’s critical to understand how much cash you “burn through” on a monthly basis.

Unless you are already making money through passive income, your earnings during a sabbatical will likely fall significantly or zero-out while expenses continue to exist. That shouldn’t be a show-stopper though, because sabbaticals are periods you’ve planned and prepared for a negative burn rate.

Use an expense tracking spreadsheet or money management app to aggregate:

  • passive income sources such as savings account interest, taxable investments, real estate rental, etc;

  • all expenses that come out of your wallet, bank accounts, credit cards, etc.;

  • any debts like student loans, mortgage, etc. that must continue to be paid.

Try to use at least one year’s worth of earning and expense data and omit any outliers. Then calculate your average monthly sabbatical burn rate by subtracting annual expenses from annual passive income and dividing by 12.

Maintaining a sustainable burn rate for the period of your sabbatical is the metric that determines how long you can enjoy workless freedom. Start by planning for a period of time you can comfortably sustain your current monthly living expenses. Your monthly burn rate is also a good figure to use to double-check your repatriation fund estimate. For example, 6x your monthly burn rate gives you a 6-month runway when you return.

Cash Runway Analysis

Now put all of these figures together to capture a drone shot of your sabbatical needs. You may be surprised by the cumulative result!

Available Sabbatical Funds= Savings - Start-up Costs - Repatriation Fund
Months Sabbatical is Sustainable= Available Sabbatical Funds / Monthly Burn Rate

Case Study of How I Put This sabbatical Financial Formula Into Action

When I first committed to change my life back in 2014, I envisioned freedom on the open roads. An Airstream would be my charming toaster on wheels that would serve up slices of the good ‘ol days. Or maybe I’d prefer visiting all of the US National Parks, camping in a stealth mode Sprinter van along the way. Oh the possibilities!

As I was downsizing to move into a mobile tiny home, I eventually realized I was still lusting over material possessions to buy my way to freedom. My alternative lifestyle was “smaller”, but included a lot of big purchases that would set back a financially achievable sabbatical by a number of years, something I wasn’t willing to wait for. So I shifted gears to focus on a more affordable sabbatical style. And, it was a cool mid-November day when I finally moved 1,596 meters (5,237 feet) closer to the sun.

After three years dedicated to gradual lifestyle adjustments, including downsizing and a deliberate switch to goals-based financial management, I landed on a mountain-side in the Bajio. I invested in a few items of travel gear, packed mostly only what I already owned, reduced my cost of living, immersed in a different culture, started learning spanish (a sabbatical goal), and let the stress drain from my body.

Here’s what my real-life numbers looked like when plugged into the sabbatical financial planning formula discussed above:

Total Available Savings for Sabbatical $62,000
Start-Up Costs $5,000 e.g. gear, plane flights, global insurance, etc
Repatriation Fund $21,000 covers 6 months of living expenses for when I transition back to full-time employment
Remaining Sabbatical Savings $36,000
Monthly Expenses $3,500 ongoing debt payments + general living costs
Monthly Passive Income $500 Interest and dividends from savings and investment accounts
Monthly Sabbatical Burn Rate $3,000
Months Sabbatical is Sustainable 12
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Automate Where Your Money Goes

When I started searching for ways to gain better control over my financial life, I did what a lot of people do and setup a strict budget that converted me into a grumpy penny-pincher. Because, if I could just stick to a spending blueprint, then I could afford that big retirement goal that would make me happy! right?

Not so fast. There’s a difference between being in control of your money and micromanaging it to the point of burnout. Scrimping to try to save money on every purchase quickly exhausted my willpower. I would save a few dollars on lunch, only to spend 100x that when I paid my car loan every month without thinking twice. Bigger, and much more impactful, financial decisions were being lumped in with my sandwich order. Chronically stressing about my finances led me to ignore them altogether for stretches of time until I knew I had to open my finance app; then my blood pressure would spike again. It’s an unproductive and self-inflicted cycle.

I only got a true grip on my spending when I realized budgeting isn’t just to restrict spending or to boost saving.

The real value of budgeting is to understand spending behaviors that have an appreciable impact on quality of life.

Once I got that concept down, I could focus on measuring the few spending categories that have an outsized impact. Using automation to remove as much of the day-to-day decision making as possible advanced me towards my goals.

Stress less, save more with the 80/20 Rule

Ask any successful person about accomplishing goals in life and she will tell you one of the keys is reducing the information overload that causes us to lose sight of a clear pathway to achieve our objectives. The Pareto Principle, or 80/20 rule, is a great way to reduce the unhelpful noise of spending management. The fundamental premise is that 20% of actions lead to 80% of the outcomes.

To have the greatest impact on personal finances with the least amount of effort, focus on the 20% of lifestyle choices that make-up 80% of total spending.
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Most people’s expenses predominantly come from housing, transportation, food, taxes, and healthcare. So, by focusing on these “big 5” categories, you can reduce time spent on managing your budget and actually boost your savings rate.

Easy to use personal finance apps like Mint can help proactively manage ‘big 5’ expenses without a lot of hassle. But, they also make it easy to binge on spending data. When I first started budgeting, it caused me to focus more on data management than the better money management outcomes that I was looking to produce. The stress of expense tracking is exactly why I gave up on budgeting.

For example, the budget section in Mint displays spending by expense category for each month. I tried to use this feature to stick to my budget, but the result was anxiety over small expenses without significant financial gain. Spending varies over time and worrying about staying under budget in every category every month leads to “budget burnout”.

 

Automated Expense Tracking is a Winning and Effortless Habit

A great benefit of Mint is the way it automates spending categorization for everyday expense tracking so you can be smart about understanding where your money is going without a lot of effort.

Old school budgeting tools involve tracking individual transactions, which is tedious and overwhelming. Auto-categorization in Mint helps lazy budgeters like me form impactful budgeting habits. With just 10-minutes a week spent managing expenses, Mint’s automation feature learns how to categorize spending for you so it’s one less task to worry about.

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To start using automation in Mint, go to the “Transactions” tab and review expenses in order by date. For any transaction that’s categorized incorrectly, select “edit details” and complete the following steps:

  1. Select the transaction categories carrot to open the dropdown menu

  2. Choose the desired expense category and subcategory

  3. Select the “rules” checkbox to apply the designated expense category to all transactions (past and present) from this merchant

  4. Click “Done” to save your changes

Being diligent in educating Mint pays off as the app becomes familiar with your spending preferences. In just a few weeks, I was able to spend less time budgeting and get better insight on where my money was going.

 

Automate Cash Flow To Save For Your Sabbatical Faster

This diagram illustrates exactly how we automate our finances to consistently save 50% of our income and maximize tax advantaged options without daily stress.

Automated monthly deposits into our checking and savings accounts put money straight into our start-up and repatriation funds before we even think about spending on something else.

Reconfiguring my lifestyle and financial plan to include sabbaticals introduced a few different challenges that required adapting my money mindset and cash flow management. But, once I figured them out, it was easy to automate many of the tasks so I no longer had to worry about them as part of my regular routine.

Automating personal finance management helps to remove emotion and give the willpower to stick to your plan.

In the seminal personal finance book, I Will Teach You to Be Rich (IWT), Ramit Sethi outlines how to automate day-to-day financial tasks. Once the automated accounting system is in place, your money is routed where it needs to go without any effort by you. All of your investments, bills, savings and general spending funds (etc.) are being taken care of while you...sleep, have fun with friends, build out other parts of your sabbatical plan, make more money, etc.

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Money Hacks to Achieve Your Sabbatical Sooner

At various points in my journey, I wanted to kick into savings overdrive to expedite my pathway to a sabbatical or conserve cash to extend my work-less time.

There are no get rich quick schemes or simply massaging the numbers to make your alternative retirement plan work.

Money hacks are the ‘icing on the cake’ that make a good personal finance situation better. Here are my proven money hacks that may help in your journey.

Geoarbitrage

Geoarbitrage is a powerful tool to get more bang for your buck. Short for geographic arbitrage, it refers to the life hack that takes advantage of different costs of living and currency values between countries. The concept has been popularized by Tim Ferriss (The 4-Hour Work Week) and other travelers and entrepreneurs who have based themselves abroad.

While geoarbitrage is often touted in lists of personal finance tips, it’s really a tactic in lifestyle design that can provide greater financial flexibility to expedite your path to a sabbatical or extend the sabbatical journey that you’re already on. Basing yourself in a “geoarbitrage location” means deliberately choosing somewhere that is less expensive AND aligns with your interests and values.

To find your best places for geoarbitrage, start by figuring out where you can boost your purchasing power by leveraging beneficial currency exchange rates and/or capitalizing on a lower cost of living. Then, narrow down and prioritize your geoarbitrage locations list based on those cities, villages, cabins in the woods, remote islands and any places that align with your lifestyle interests by offering you a rich quality of life at a fraction of the cost.

The bottom line is that adopting domestic and international geoarbitrage at different phases of your life will help you take a rejuvenating sabbatical sooner, live without active income for longer, and enjoy experiences that you otherwise might not have been able to afford.

 
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Case Study: geoarbitrage Livin’

When beginning my own sabbatical in 2017, the value of the US Dollar to the Mexican Peso was near its multi-decade peak; I saw the opportunity for an extra geoarbitrage boost in a place that I had already explored on previous vacations and grown to love. Before taking the plunge, it was comforting to gain a greater sense of how the lower costs would make paying for my day-to-day living expenses feasible without washing away all of my sabbatical savings.

Visions of a luxurious month of stressless zen on white sand beaches and turquoise water shores went from unaffordable to easily achievable. And 6-weeks of learning Spanish in a UNESCO heritage colonial Mexican town became the perfect way to start my first sabbatical.

 
 

Online geoarbitrage calculators are helpful tools for an initial gauge of the numbers. While there are a myriad to choose from, they aren’t personalized to your spending patterns or lifestyle. After dozens of trips to different geoarbitrage locations, I’ve translated my worldwide travel planning and cheap living experiences into a functional, dynamic geoarbitrage analysis tool that builds on my 80/20 budget to satisfy my wanderlust in a practical way—you can download it for FREE here! —>

Global Health Insurance

Mention health insurance to anyone in the US and eyes glaze over and fire shoots from their nostrils. Research consistently shows that healthcare and its evil twin, health insurance, is one of the top concerns for US citizens. It’s also one of the largest expenses in a typical person’s budget. A sabbatical can bring those worries to the surface, as employer provided health insurance may no longer be an option and sticker shock sets in.

Unless you’re comfortable with unpredictable and unlimited financial risk (you shouldn’t be), health insurance is a mandatory part of life. There are hundreds of plan options available that are a real pain to weed through. But, here are the main health insurance types to consider as part of your sabbatical planning:

  • COBRA- a federal law requiring employers to make the same group health insurance policy available to past employees for 18 months after an employee leaves a company. If you have good coverage and want to keep it, this is an option to do so. But, it’s worthwhile to check on pricing early because you’ll likely be surprised by how much it will cost you without an employer subsidy.

  • Affordable Care Act- domestic marketplace for health insurance that is either offered by State or Federal government through an exchange. Normally, you can only sign-up for ACA plans at certain times of the year, but leaving your job (and your employer provided health insurance coverage) counts as a “qualifying event” so you can enroll at that time regardless of when it is during the year. ACA insurance premiums are based on family size and income (keep in mind that W-2, 1099, stock sale gains, and dividends are all counted as income).

    If you are going to be within the US during your sabbatical, your low income for the year may make ACA a great option. There are a number of resources available to help sort through the different plans. One additional note is that there are very few nationwide coverage plans left on the exchanges. So, if you plan to be moving around the US a lot, it may be worth looking at alternative options.

  • Travel Medical Insurance- typically provides limited coverage only while outside of the US. This option is viewed by most US travelers as supplemental insurance since it usually does not cover pre-existing conditions, ongoing expenses within the US, and a host of other items. Most conclude that a travel health insurance policy does not offer the necessary protection from financial risk to be your only policy. You could layer a travel medical insurance plan on top of a domestic policy to provide necessary short-term coverage .

  • International + Domestic Insurance- bundled US and international health insurance plan. If you’re like a lot of people taking time off work for a sabbatical, a mix of time in the US and international travel may be on your agenda. There are a handful of domestic insurers and brokers that provide combined domestic and international insurance options. The benefit is that you receive comprehensive coverage and can clearly assess potential financial liability and care coverage in a single package. You also only have to work with a single agency for benefit questions and claims.

Reviewing health insurance contract plan options requires some real fortitude. Boiling it down to the most important elements, these are the coverage technicalities to take into consideration:

  • Plan type- choosing a PPO, HMO, international, or other type of plan determines the extent of coverage you get within a network of designated providers. Note that coverage networks are getting smaller, but all plans under the ACA must cover emergency care even if out of state and/or out of network (though this does not apply to international coverage).

  • Premium- amount paid (on a monthly or annual basis) to buy access to the coverage plan. This is the minimum amount you will pay for coverage.

  • Deductible- how much you have to pay before the health insurance starts covering costs. If you choose a qualified, high deductible health plan, you are eligible to contribute to a health savings account, which can be a great option for turbocharging tax-free retirement savings

  • Co-Insurance- how much (usually shown as a percentage) you have to pay once your deductible is paid. This is one of the key ways insurance providers split the cost of paying for services with consumers.

  • Co-Pay- how much you have to pay out of pocket for an office visit, test, or prescription

  • Out of pocket maximum- the most you would be on the hook to pay in any given plan year. This is the most important number to consider. Healthcare expenses are the number one reason for individuals filing for bankruptcy, likely because people lack an understanding (or fail to fully consider) the worst case scenario.

  • Lifetime maximum- how much in total the insurance will pay over the lifetime of the policy. Also important for worst case scenario considerations.

Case Study: Global Insurance For Global Citizens

By 2017, I had sufficiently organized my finances, transitioned my work and downsized my material possessions. At that point, the freedom to relocate made many of the places I had been thinking about going while on sabbatical become real possibilities.

Setting up shop in a low cost of living area where I could enjoy a higher quality of life had already been on my mind. And the culture, cuisine and climate of Mexico was calling my name. First though, I needed to make sure I had adequate health insurance coverage.

Travel’n COBRA

At the time I was preparing to head South of the Border, my healthcare costs were covered by the employer provided policy through my wife’s full-time job. When she left her job, we both transitioned to COBRA (luckily partially subsidized for 6-months by her employer as part her exit package negotiations), and added an affordable supplemental travel insurance on top of it.

But, as the half-year mark approached, I knew we had to re-open the can of worms that is global insurance shopping. The matter was further complicated by the fact that I had some personal commitments that would require me to be back on American soil for a few months, mid sabbatical. A brief but dizzying search of options proved it was practical to pay out of pocket to extend COBRA until we’d be expatriating again. It was a hefty fee, but it was more comprehensive than we’d get for the same price on the open ACA exchange. And we both strategically used that time to do complete rounds of doctor visits and dental check-ups.   

Global Health Insurance

Since my intention was to be out of the US for most of my sabbatical, international coverage was weighted more heavily in my decision. At the same time, I wasn’t comfortable going with zero domestic coverage.

Naturally, like any personal finance geek would do, I created a spreadsheet to compare my options. Again, since I wanted to be covered within the US and abroad, I looked at two main categories:

  • an ACA plan supplemented by travel health insurance

  • expat health insurance that included at least some domestic coverage

Two other factors that I ruled out and added in:

  • Coinsurance - Since knew I’d be looking at high deductible plans, I decided early on that coinsurance didn’t make sense , so I only looked at policies with 0% coinsurance.

  • Maternity coverage - was also a factor for since we were considering having children. But, we weren’t far enough along in our family planning to know where or when it would happen. I did some research on what it would cost to pay out-of-pocket to give birth abroad, and took that into consideration.  

My final analysis tallied the monthly premium, deductible, copay and forecasted out-of-pocket expenses to calculate an estimated 6-month cost that helped standardize an otherwise jumbled comparison. Shopping for global insurance is one of those experiences that has a way of always leaving us feeling unsatisfied. The insurance business is based on risk aversion after all. But, ultimately, I was happy with what I got.

IMGlobal was the best health insurance choice for 3 main reasons:

  • US coverage is available for 6 months and contracts with the UnitedHealthcare PPO network (which I had previously and was happy with)

  • Maternity is covered after 10 months of continuous coverage and the deductible is subsidized for care provided outside the US

  • High deductible options offered a good value for “catastrophic coverage” and a decent suite of services

In total, I paid $5,300 for both me and my wife for the year - not cheap! But it gives both of us the comfort to pursue worldwide travel and access care in any state in the US. If the maternity coverage was forgone, the cost would have been $1,000 total. Adding it all up, we got comprehensive global insurance coverage that is a better value than what we get in the US alone—that’s more flexibility and more peace of mind at a more reasonable cost.

Engineering your layoff

Unless you’re one of the lucky few whose employer has a sabbatical program, a planned extended time away from work will likely require parting ways with your employer. But, before you just quit, and end up with nothing more than a going away party, consider negotiating your layoff.

The reality is, nobody likes seeing good employees go – not HR, not managers or company owners. The cost alone to replace an employee can be tens of thousand of dollars (plus intangibles), and the situation is made that much more difficult if a company can’t count on departing employees to help with the transition.

Keep in mind that employers are not obligated to offer anything, and to the State, quitting your job means that you didn’t need the money, so receiving unemployment benefits are off the table too. But with a little forward thinking, you could receive severance of cash, health insurance, unemployment compensation, and more to smooth your pathway to a rejuvenating sabbatical. For a valued mid-level employee, severance can easily amount to $50k or more.

In order to successfully negotiate a layoff, it’s important to understand what’s at stake for the company. And, by knowing what you want before leaving the job to take a sabbatical, you’ll give yourself the upper hand in negotiating the appropriate severance with management. Learn the ins and outs of engineering your layoff to profitably quit your job, and create a financial freedom tailwind as you transition to pursuing your sabbatical dreams.

Travel Hacking

If you plan to travel during your sabbatical and aren’t travel hacking, then you’re missing out on free money. Taking advantage of credit card travel hacking can help to save thousands of dollars on flights, hotels, car rentals and more.

There’s one caveat -- travel hacking is only worthwhile if you don’t have challenges with debt and can pay off your credit cards in full every month. Carrying a balance on credit cards just to receive bonus rewards is a losing proposition.

Credit card bonuses range from cash back, to airline frequent flier miles, to points that can be applied to various travel-related and other categories of purchases. If you sign-up for the right card, or groups of cards, you can easily build enough rewards to take your family on trips to almost anywhere in the world. Even better is if you currently travel for work and have an opportunity to collect miles, then you’re essentially earning rewards for free from employer-paid travel expenses.

Chase Sapphire cards have offered some of the best rewards programs over the past few years. Offers are constantly changing, and you’ll have to spend a little effort analyzing the details about the requirements to receive the rewards in order to make sure it matches up with your spending and lifestyle. There are some great services that sort through all of the fine print for you and can help to expedite your rewards accumulation in time for your sabbatical.