Planning a 2-Year Hiking Sabbatical

A couple weeks ago, Briana DeSanctis, became the first women to solo hike the entire American Discovery Trail which was a whopping 6,800 miles!

The hike took her roughly 2 years to complete. I struggle to wrap my mind around the amount of logistics that go into completing a 6,800 mile hike.

Briana's huge accomplishment got me thinking, how many people want to do something similar but feel they can’t leave their jobs for a few months or years?

So, I wanted to take some time and write about the personal finance side of planning for something like this and and how to make it a reality.

A lot of people would be surprised at what's truly possible given their situation. Even if a full 2 year sabbatical isn't possible, experiences of smaller magnitude can still be absolutely life changing and are worth exploring.?

Mechanics of Planning a Sabbatical

This next section will briefly walk through a high-level overview of how to start looking at whether a sabbatical is realistic and, if so, what's possible.

Your Current Finances

At the most basic level, you’d want to start by taking stock of the following:

1?? Your target sabbatical length (though, this is something that could be determined after examining what's possible given your current financial situation).

2?? Current assets

• Retirement savings
• Emergency funds
• Taxable investments
• Real estate assets

3?? Current debt

This info will serve as a baseline for your financial plan.

Next, start exploring the potential costs of a sabbatical.

• What do you hope to do during your time off?
• Does your employer allow for a sabbatical? If not, there may be room for negotiating and possibly getting their stamp of approval. It’s often cheaper for a company to retain a seasoned, trained employee, rather than go through the time and expense of hiring and training a new person.
• If your employer ultimately will not approve a sabbatical, you’ll want to consider including the time to search for a new job in your sabbatical planning. For example, you may want to add a couple months after your sabbatical to exclusively devote time for finding a new job, or even pursuing other educational opportunities to improve your prospects for getting a new job.

Project Your Expenses

As you start projecting the expenses during the sabbatical, be sure to think about things like health insurance, housing, food, utilities, etc.

Be realistic and factor in potential fluctuations during your trip. Consider potential changes in your spending habits while on sabbatical, such as reduced utility costs but increased food and gear expenses.

There may be opportunities for low cost health insurance during your sabbatical as your income may be significantly lower than it was when you were working.

Here’s a recent webinar I co-hosted with another advisor which covers early retirement healthcare options. Most of the info covered will be applicable during a sabbatical phase.

In addition to all of this, you may also want to consider some short-term adjustments to your current spending leading up to the sabbatical to help you better prepare for the transition.

This could mean skipping regular trips or vacations, finding ways to reduce housing or vehicle expenses, etc.

This will help add some extra cushion in the finances and will also allow you to boost your savings as you approach the sabbatical.

Run the Numbers?

The final step is to spend some time analyzing your financial plan and the impact that the sabbatical would have on your long-term plan & security.

This will also help you explore different ways to use your current assets during the sabbatical.

If you own a home, this is a great opportunity to consider things like downsizing, selling your home, or renting your home, and seeing how these "levers" affect your plan.

For example, if you own a home, you could examine how your plan holds up if you were to sell your home and then compare it to a separate scenario where you rent it out during your absence.

Analyzing different scenarios is also going to help you thoroughly plan for how to transition out of the sabbatical period.

Case Study

Here’s a case study to show how this analysis might look.

Let’s assume Pam Beesley is wanting to see what it would look like to take a 2-year sabbatical to hike some of her bucket list trails.

Her current plan is to work until about age 65 but she’d like to see what a 2-year sabbatical would do to her long-term financial plan.

The Details

Pam is currently 45 years old, making $100,000 per year. She’s been a diligent saver and saves roughly 10% of her salary into her 401k (plus a 3% match), $6,500 per year into her Roth IRA, and an additional $4,500 per year into a taxable brokerage account (~22% total savings rate).

She has accumulated the following assets to date:

·????? $250,000 401k

·????? $100,000 Taxable Brokerage Account

·????? $150,000 Roth IRA

Currently she’s spending about $4,000/mo. and anticipates that her monthly expenses during a sabbatical would drop to about $3,000/mo.

To be a little conservative with our planning, we’re assuming that Pam would make about $80,000 per year post-sabbatical. Anything earned above that is icing on the cake!

So, how does a 2-year sabbatical impact Pam's long-term plan?

The Results

You can see in her current plan that working until 65 provides her with a 95% chance of success, assuming no changes.

A probability of success is determined by running 1,000 different simulations and illustrates the number of outcomes where money was still leftover at the end of retirement.

A large probability of success isn’t always the goal because it indicates that you’re overfunding retirement; said another way, it can indicate that you may be saving TOO much and passing opportunities for more experiences today.

In this case study, Pam would pause her retirement contributions for 2 years and start spending some of her wealth today.

Even after the sabbatical, she's still on the right trajectory for her long-term plan and still well on track towards her original retirement goals.

Remember that this 80% probability of success assumes no changes or adjustments during the path to retirement.

Small changes over time like increasing savings rates, salary raises, moving the retirement date, and more can make dramatic impacts over the remaining working years.

There are so many different levers you can pull to help your long-term plan.

Other Opportunities

Lastly, there are other financial planning opportunities that may pop up during your sabbatical which can, in turn, help your long-term plan.

For example, you may find that your income drops significantly during a career break. This would be a great opportunity to take advantage of your lower-than-usual tax bracket and get some money switched over to Roth accounts (i.e. Roth conversions).

This is why it's so important to continually monitor your financial plan as there are opportunities that will pop up over your journey.

The Softer Side of Money

One thing that can’t be shown in financial planning software is the fact that experiences like Briana's 2-year hike across the country will produce large dividends in the form of memories.

Think of these as "memory dividends". This is a term created by the author of the book Die with Zero (one of my all time favorite books).

The author is essentially saying that spending money on an experience will earn you a return in the form of memories. The younger you are when you have an experience, the longer and more valuable those memory dividends.

Also, don’t discount the fact that all of us our aging and our health may not be there tomorrow. It's so easy to say "I'll do that when I'm retired" but your future health isn't guaranteed. You know your health today and spending money on an experience today isn't necessarily a bad thing (as long as you have a plan in place).

In my experience working with retired folks, I’ve never had someone say they wish they wouldn’t have spent money on a vacation or another adventure.

Remember, you don’t win any awards for accumulating the most money when you die. ?

I hope you enjoyed this one! Hopefully it lights a fire in you to work towards something that seems unattainable today.

See you down the trail!

Cody

If you'd like to talk, feel free to grab a time here.

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