How can you plan to take a year off and still saving for retirement?

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Here is a tough financial
planning challenge:

How do you
save to take a year off as a sabbatical, or go a big (expensive) vacation, and
still stay on track with saving for your retirement?  

What if you also have student loans you
desperately want paid?  

Answer: it depends on your situation! 

If you get a large capital influx

The easy solutions would be
some massive influx of capital, such as stock options in a company that
skyrockets in value or a huge inheritance … or winning a major lottery
prize.  Such an influx of capital would
provide funds to pay off the debt, invest for retirement and cover the costs of
a sabbatical or round-the-world vacation. 

If your spending is meager

At the other end, the problem might
be soluble if your needs at retirement are quite modest.  Meager needs would require less saving to
reach retirement, allowing you to spend more now and even take off from work
for a period of time. 

Everyone else

If you’re spending is average,
and you don’t have the fortune of a major capital influx, then you really need a
good plan that plots out how you will pay off the debt, save money for the
sabbatical or vacation, and still save and invest enough to meet your
retirement needs.

Possible strategies

Obviously, one strategy would
be to delay retirement.  This way you
need to save and invest less now to fund your lifestyle when you do retire.  

Another strategy would be to
commit to saving a great deal now and after the sabbatical or vacation.  This would mean serious cost cutting on
expense so you can save more when you are earning.  

Using debt more is another
strategy.  That is, you can’t do it all
immediately, so you may have to live with the student loan debt longer than planned.
 If you can keep saving for retirement,
you may want to borrow to fund the sabbatical or vacation, with a plan of
paying it off afterwards.  

Cost-out your goals

How do you pick and implement
the best strategy?  First, quantify your
options.  You can calculate what you need
to save for retirement.  This includes
what you set aside in your 401(k) or 403(b) plan and any Roth IRA or

When you cost out saving for
the sabbatical or vacation, you cannot count on the return you expect from
retirement savings.  You have short time
horizon and cannot take as much risk. 

Review your student loan debt
to see the interest rate.  If it is low,
you want to delay paying anyway.  See Let’s really
talk about risks

Devising a plan – the goal and resource mash up!

Any planning problem can be solved;
it just requires pushing around all the possible resources and variables so
that you fit the square peg in around hole. 

You sort through the cost of
the goals compared with the total you have decided to save for the goals.  If what you can save doesn’t allow you to
meet your other goals and still take a full year off, then maybe you would have
to settle for nine months, or a less expensive vacation.

Okay, now get going and good
luck (and send us a postcard when you do go away).

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