Author Topic: Sabbatical year pre-FIRE?  (Read 50520 times)

dhc

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Sabbatical year pre-FIRE?
« on: October 10, 2023, 08:32:10 AM »
Summary: My company looks likely to be acquired, and our child is at a great age for a long adventure. There's a chance my stock options could put us over our FIRE number, but it's more likely we won't be quite there. We're thinking of taking a year off anyway.

Life Situation: MFJ, one child, we currently reside in Wisconsin but we’re considering a move eventually.

Gross Salary/Wages: $180,000

Current expenses: Not fully detailed here, but tracked closely including long-term maintenance items, healthcare, etc. Total of $57,500/year. The relevant details for my questions are:

Housing-related
  • Mortgage: $660/month (see below for details)
  • Property tax: $550/month
  • Utilities: $285/month
  • Home insurance: $55/month
  • House maintenance: $300/month (saved/allocated and then spent as needed)

Travel
  • Current travel budget: $500/month

Expected sabbatical expenses: similar, except we’d either sell or rent our house and have higher travel expenses. Current estimate is ~$3,000/month in travel-related (including replacement of current housing) expenses for about a year, meaning overall expenses of about $68,000 for the year.

Zillow gives a rental zestimate of $2,300/month if we were to rent our current house. That seems like it’s in the ballpark compared with similar rentals around here. Cashflow-wise, this could cover some of the difference in expenses for the year of travel.

Eventual ER expenses post-sabbatical: unknown, but expected to be similar to current, with the possible exception of housing. We’d like to move (location currently unknown); even if we find housing at a similar price point, mortgage rates mean that line is likely to increase by some (possibly significant) amount.

Assets & Liabilities:
  • Cash: $30,000
  • Taxable Investment: $400,000
  • I-Bonds: $55,000
  • Roth IRAs: $90,000
  • 401(k)s & IRAs (Pre-tax): $425,000
  • HSAs: $30,000
  • House: Zestimate of $435,000 with outstanding mortgage of $155,000 @ 2.625% = ~ $280,000 of equity, but likely less upon sale for transaction costs
  • Stock options: I expect to receive a payout on these in 2024, probably for a 6-figure amount. That could plausibly mean $100,000, or $600,000, although the lower end is likely more realistic.

Specific Question(s): There’s a lot I won’t know until my company is actually acquired, but I’m starting to think through the hypotheticals. At this point, it seems relatively unlikely that the stock option payout will take us over our FIRE number, and even if they do, that would be for current expenses, not our planned travel budget or eventual (unknown) future housing expenses. However, I’m feeling burnt out, and company acquisition seems like a potentially good inflection point for some time away that would be easy to explain later on a resume.

Are we crazy to be considering this? By my projections, we’re probably 5 years out from FIRE with no stock option payout (less whatever the payout ends up being worth). A sabbatical year likely delays that, although quite possibly only by a year or so.

If we take a sabbatical year, and knowing that we eventually want to live somewhere else, but also keeping in mind our much-lower-than-currently-possible mortgage, is renting our house out for the year we’re gone the best option? Although I don’t want to live here forever, I’m worried that if we sell, we might regret it after the year, either because we still don’t know of some place we’d rather live, or because the difference in cost pushes FIRE back so far that we can’t stomach it.
« Last Edit: October 31, 2023, 01:32:19 PM by dhc »

Laura33

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Re: Sabbatical year pre-FIRE?
« Reply #1 on: October 10, 2023, 11:08:47 AM »
Do it.  Don't even blink.  Money is fungible.  Time is not. 

FWIW, you don't need to make long-term decisions now, like whether to sell the house.  And you shouldn't, because (1) you're burned out, which fucks with your judgment even when you don't think it does, and (2) you have no idea what you will want/need in 5 years when you're ready to FIRE for good. 

One thing many of us struggle with is the need to have everything all planned out -- to "know" with some degree of certainty what our path is going to be.  The problem with that is that you can't actually know, and in fact no matter how much effort you put into it, you will often be wrong (because, duh, you can't actually know).  I am older than you and have had many more years to make mistakes; I will spare you all the details, but just trust me when I say that I can rattle off multiple times when I was wrong on big decisions, despite being pretty damn smart and putting a lot of effort into it.*  And the more you try to nail down the future, the more you stress yourself out over something you can't control.  So why do that if it won't even work anyway?

IMO, the best path -- particularly when it comes to $$$ decisions -- is to make the decisions you need to make when you need to make them, and not before.  Of course you want to research all your options and play with various plans and all that; you just don't need to execute them right away.  That simplifies both your life and the mental load.

Want a sabbatical?  Can you afford it, and is it a good time to do so?  Yes.  OK, great -- go!  Make that decision, and then focus on how to implement that at minimal cost.

Sell the house?  Well, you don't need to make that decision now, do you?  You're currently talking about a year away, not a lifetime.  Focus on the sabbatical, rent the house, and leave the "permanent move" decision until you need to make it. 

Also, FWIW, don't count your home equity in your retirement 'stache, because you're always going to need to live somewhere.  But you are in great shape no matter what you do this next year, so congrats!  Now it's time to use the freedom you've bought yourself.


*Ok, here's one.  After the 2008-09 housing crash, we had a foreclosure opportunity on a condo in our desired retirement location.  Bought it for a song, figured we could have a tenant pay the mortgage in the interim.  We are now looking at a semi-retirement and spending more time there and realized that the condo won't actually work for us long-term -- DH needs a workshop, I want 3Br for both kids to be able to visit, and we want more privacy.  So we're now looking to sell and buy another place.  Now, the value of the condo has more than doubled, so you'd think we'd have made out like bandits, right?  DH did the math, and even with the huge jump in value, our overall annualized return was like 3-4%.  We'd have done significantly better just keeping our money in the market, and saved ourselves a lot of hassle, too.

smisk

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Re: Sabbatical year pre-FIRE?
« Reply #2 on: October 10, 2023, 12:23:34 PM »
I say do it - but as someone also considering some sort of sabbatical I'm more curious on where you plan on going, what your general travel plan is like. I'm considering taking 3-4 months to drive around south/central america after I sell my house and learn a little more Spanish.

ChpBstrd

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Re: Sabbatical year pre-FIRE?
« Reply #3 on: October 10, 2023, 02:43:03 PM »
My math says you have a $970k liquid net worth, excluding options, e-fund/cash, and HSA.

You could put it all in one-year CDs or high-grade bonds yielding 5.6% and be paid $54,320, before taxes. That 100% safe AA covers all but $12k of your expected travel spending to do a once-in-a-lifetime thing. Many people spend that much and lose that much income to go on one or two week vacations. This is just an illustration about how you can afford this. Selling the house or getting the stock options exercised are optional.

Then you move back into your house and resume normal life, not really any worse off financially.

I would keep the house and lease it out. You'll have to hire an agency. You might want to explore this relationship as the first step in your plan, because most of these cater to landlords rather than people in your situation with a higher-end property and one-year horizon. Alternatively, you might find a friend willing to lease it from you to run an AirBNB/VRBO side gig for a year.

Factor in the cost of storage unless you want to sell all your stuff before you hit the road. Might be worth constructing a locked building in the back yard.

In the meantime, max out your Roth IRAs and your 401k. Those stock options are going to bump you into a high bracket when they pay out. I assume you'll wait until the stock options are exercised and then spend the cash from them rather than generating additional capital gains in your taxable accounts.

Finally, you say the kid is at a great age for a one year adventure, but what are their thoughts about not having any established friends for a whole year? Will they bounce from school to school, homeschool, etc? And if so is all that hassle really a vacation? Depending on age and disposition, the kiddo might be miserable after being torn away from routines, recesses, relationships with other kids, etc. Seeing sights around the world might not impress them, and when the kid ain't happy, nobody's happy. Maybe do a couple of 2 week trial runs and see how it goes before committing to the plan.

reeshau

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Re: Sabbatical year pre-FIRE?
« Reply #4 on: October 10, 2023, 03:00:30 PM »
Great points so far.  I totally agree that time is not fungible; particularly various stages of your kid's life.  Go make some lifetime memories.

Two points on costs:

+1 to considering storage costs in your net from renting.  They will not be negligible, particularly for climate controlled units.

Also, explore what you will do for healthcare.  Your healthy income won't get you an ACA subsidy.  And your bonus will certainly put it out of reach that year.  So the bill could be big.  Also, research the geographic coverage of plans available for you.  I couldn't even find coverage to let me see a specialist in Dallas, much less another state.  (Even though the insurer also has plans in Dallas)  We get emergency coverage only outside the Houston metro, so we do travel insurance, even in the US.  This was one of the biggest changes to get used to, for me.

Others have reported that they can get ACA plans with national coverage.  If you will travel a lot, that will be a major consideration for you.  For your sabbatical year, you might consider COBRA, if your employer does have national coverage.  You will still pay the employer's side in addition to yours, so health insurance costs will be higher.

dhc

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Re: Sabbatical year pre-FIRE?
« Reply #5 on: October 11, 2023, 08:54:50 AM »
Thank you all for the thoughts and advice. You've given me lots of things to start thinking about in order to actually make this a reality vs the general existential questions I'd been wrestling with.

Do it.  Don't even blink.  Money is fungible.  Time is not. 
Thanks for the encouragement!

Also, FWIW, don't count your home equity in your retirement 'stache, because you're always going to need to live somewhere.  But you are in great shape no matter what you do this next year, so congrats!  Now it's time to use the freedom you've bought yourself.

Good point, and I haven't been except in illustrating the equity we'd take to a potential different location down the road. But as you pointed out, that's a decision for later.


I say do it - but as someone also considering some sort of sabbatical I'm more curious on where you plan on going, what your general travel plan is like. I'm considering taking 3-4 months to drive around south/central america after I sell my house and learn a little more Spanish.

The basic idea for us is a year in a travel trailer, including driving to Alaska and back.


I would keep the house and lease it out. You'll have to hire an agency. You might want to explore this relationship as the first step in your plan, because most of these cater to landlords rather than people in your situation with a higher-end property and one-year horizon. Alternatively, you might find a friend willing to lease it from you to run an AirBNB/VRBO side gig for a year.

Yes, this is what I'm thinking as well. Any tips in terms of finding an effective property manager in a situation like this? Unfortunately, the city I live in makes short-term rentals pretty impossible for our situation.



Factor in the cost of storage unless you want to sell all your stuff before you hit the road. Might be worth constructing a locked building in the back yard.

Excellent point; thanks.

Finally, you say the kid is at a great age for a one year adventure, but what are their thoughts about not having any established friends for a whole year? Will they bounce from school to school, homeschool, etc? And if so is all that hassle really a vacation? Depending on age and disposition, the kiddo might be miserable after being torn away from routines, recesses, relationships with other kids, etc. Seeing sights around the world might not impress them, and when the kid ain't happy, nobody's happy. Maybe do a couple of 2 week trial runs and see how it goes before committing to the plan.
Excellent points, and ones we've thought of. It is definitely not really a vacation, but we think now's a time that probably lends itself better to the sort of trip we're wanting to do than most times of life would.

Also, explore what you will do for healthcare.  Your healthy income won't get you an ACA subsidy.  And your bonus will certainly put it out of reach that year.  So the bill could be big.  Also, research the geographic coverage of plans available for you.  I couldn't even find coverage to let me see a specialist in Dallas, much less another state.  (Even though the insurer also has plans in Dallas)  We get emergency coverage only outside the Houston metro, so we do travel insurance, even in the US.  This was one of the biggest changes to get used to, for me.

Others have reported that they can get ACA plans with national coverage.  If you will travel a lot, that will be a major consideration for you.  For your sabbatical year, you might consider COBRA, if your employer does have national coverage.  You will still pay the employer's side in addition to yours, so health insurance costs will be higher.
Excellent point! Depending on the timing of the year off, we may be able to line it up enough with most of calendar year 2025 to get an ACA subsidy that year, but 2024 will either require COBRA or an ACA plan at full price knowing that non-emergency care might require coming home for.

reeshau

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Re: Sabbatical year pre-FIRE?
« Reply #6 on: October 11, 2023, 01:27:48 PM »

[/font]

I say do it - but as someone also considering some sort of sabbatical I'm more curious on where you plan on going, what your general travel plan is like. I'm considering taking 3-4 months to drive around south/central america after I sell my house and learn a little more Spanish.

The basic idea for us is a year in a travel trailer, including driving to Alaska and back.


I don't know if you have experience with this or not, but be prepared for some pretty rough roads in Alaska. (and Canada, on the way up)

I worked with a toolmaker who would spend his full annual vacation on a month riding his motorcycle in Alaska.  He would take spare axles with him.  (not intimidated by the circumstance, given his profession.  It's how he prepared)

Plenty of people do RV up there.  Just make sure you know what you will do with a breakdown.  AAA or Good Sam can pay off around there, but even with them, help could be a good distance away.

Shuchong

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Re: Sabbatical year pre-FIRE?
« Reply #7 on: October 27, 2023, 03:05:25 PM »

[/font]

I say do it - but as someone also considering some sort of sabbatical I'm more curious on where you plan on going, what your general travel plan is like. I'm considering taking 3-4 months to drive around south/central america after I sell my house and learn a little more Spanish.

The basic idea for us is a year in a travel trailer, including driving to Alaska and back.


I don't know if you have experience with this or not, but be prepared for some pretty rough roads in Alaska. (and Canada, on the way up)

I worked with a toolmaker who would spend his full annual vacation on a month riding his motorcycle in Alaska.  He would take spare axles with him.  (not intimidated by the circumstance, given his profession.  It's how he prepared)

Plenty of people do RV up there.  Just make sure you know what you will do with a breakdown.  AAA or Good Sam can pay off around there, but even with them, help could be a good distance away.

As an alternative, you can take your car on the ferry (from Bellingham, WA) rather than drive up through Canada.  Last I checked, the Alaska Marine Highway rates were pretty reasonable when compared to gas and vehicle wear/tear for the AlCan. It's absolutely worth the trip. 

Also, another vote here for the sabbatical. 

Dicey

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Re: Sabbatical year pre-FIRE?
« Reply #8 on: October 27, 2023, 06:29:03 PM »
Keep the house, take the sabbatical.

dhc

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Re: Sabbatical year pre-FIRE?
« Reply #9 on: November 02, 2023, 03:16:17 PM »
@reeshau, yep, understood


@Shuchong, that ferry is also on my list to do sometime, although once you factor in a trailer the cost spikes quickly. That'll probably end up being a different trip another time.


@Dicey, I think you've summarize concisely the overall consensus here! Now to wait and see around exact numbers from company acquisition, while also starting tentative planning.

smisk

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Re: Sabbatical year pre-FIRE?
« Reply #10 on: November 03, 2023, 09:09:57 AM »
Seeing how tiny your mortgage is vs the expected rent makes this even more of a no brainer imo, if you can get someone to sign a 12 month lease knowing that they'll have to move out after that time.
If the timing doesn't work out exactly you could always extend your vacation and live in the camper for another month or two while you wait for the tenant to vacate.

MaybeBabyMustache

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Re: Sabbatical year pre-FIRE?
« Reply #11 on: December 08, 2023, 01:20:09 PM »
I'd try to rent your house furnished, if you live in an area where that might be appealing. If not an option, strong vote to rent the house (vs sell) & take the sabbatical! I took a sabbatical about 4 years ago, when I was close to FIRE. I'm now basically FI, but haven't RE'd yet, as we're waiting to see how much college will be for our two teens. No regrets, and don't think I could have made it to this phase of my career without the break.

jeroly

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Re: Sabbatical year pre-FIRE?
« Reply #12 on: December 15, 2023, 03:55:05 PM »
If you live in a town with a university, it's worthwhile to explore the possibility of renting your place, furnished, to a visiting professor (who may well be on sabbatical themselves!) - they tend to be reliable (with a source of income unlikely to be terminated in the middle of a school year), and since their gig is just for the year, you don't have to worry about them refusing to leave when the year is up.

deborah

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Re: Sabbatical year pre-FIRE?
« Reply #13 on: December 15, 2023, 07:00:45 PM »

[/font]

I say do it - but as someone also considering some sort of sabbatical I'm more curious on where you plan on going, what your general travel plan is like. I'm considering taking 3-4 months to drive around south/central america after I sell my house and learn a little more Spanish.

The basic idea for us is a year in a travel trailer, including driving to Alaska and back.


I don't know if you have experience with this or not, but be prepared for some pretty rough roads in Alaska. (and Canada, on the way up)

I worked with a toolmaker who would spend his full annual vacation on a month riding his motorcycle in Alaska.  He would take spare axles with him.  (not intimidated by the circumstance, given his profession.  It's how he prepared)

Plenty of people do RV up there.  Just make sure you know what you will do with a breakdown.  AAA or Good Sam can pay off around there, but even with them, help could be a good distance away.

As an alternative, you can take your car on the ferry (from Bellingham, WA) rather than drive up through Canada.  Last I checked, the Alaska Marine Highway rates were pretty reasonable when compared to gas and vehicle wear/tear for the AlCan. It's absolutely worth the trip. 

Also, another vote here for the sabbatical. 

In 2016, I drove from Seattle to Anchorage in a small RV in April/May, when the roads were being patched. I drove up the Cassier Highway, then the AlCan, and went around Alaska a fair bit, driving well over 2500 miles. It was a RV relocation for a hire company, so I paid 25% of the normal price, and left the RV in Anchorage. I came back on the Alaskan Marine Highway, stopping at different places along the way for a few days at a time, seeing the towns and the sites.

It was an awesome trip. Several Americans I met on the way up the Cassier (I did a number of side trips, so it took a few days) mentioned that they were expecting the AlCan to be bad, and that it was much worse in Canada. I did see some roadworks in Canada, but nothing serious. However, once I reached Alaska itself the AlCan immediately turned into 80 miles of roadworks and most of the towns were full on roadworks because of all the winter damage.

Alternatepriorities

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Re: Sabbatical year pre-FIRE?
« Reply #14 on: December 15, 2023, 09:23:01 PM »
Youre not crazy to consider it youd be crazy not to. I took a one year sabbatical when I was far from FIRE. Many of my favorite memories are from that year. So for all the reasons everyone has mentioned, if you are burned out with work take the sabbatical! :)

Also, I live in Alaska so if you are driving up next summer and want recommendations or to meet a mustachian up here let me know.  Ill be driving the Alcan in about a month. It will be my 33rd trip over the highway. There are some rough spots but most of it isnt that bad anymore. Ill try to remember to report back on current rough spots in a month.


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Re: Sabbatical year pre-FIRE?
« Reply #15 on: December 18, 2023, 10:38:20 AM »
Definitely do it (take the sabbatical).  I'm considering similar in the next few years.  Nearly FIRE'd but want to try it out before committing. 

As a counterpoint to renting the house, I'd actually do differently in your situation.

Your mortgage and taxes are pretty low.  I'd forgo the ~$1000/month that you'll clear by renting the place just for the lessened hassle factor of not dealing with moving out, storing your stuff, dealing with tenants, cleaning before and after, etc. etc. 

What if you get 3 months in and someone gets homesick?  Being able to return home and recharge for a few weeks might be just what is needed to keep the party going, and this is much easier if you have your home waiting for you. 


Blackeagle

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Re: Sabbatical year pre-FIRE?
« Reply #16 on: December 31, 2023, 04:21:45 PM »
The basic idea for us is a year in a travel trailer, including driving to Alaska and back.

That sounds awesome.  I join the other folks here in saying go for it.

Zamboni

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Re: Sabbatical year pre-FIRE?
« Reply #17 on: January 01, 2024, 07:10:19 AM »
Hi OP, did you pull the rip-cord yet?

I'm about to take a 6 months sabbatical traveling overseas and here's what I am doing:

1. Rented my fully furnished house bedroom-by-bedroom to some graduate students. I was worried about deadbeats so I restricted the advertising to the closest university listserv. It took awhile to find the right fit, but it has worked out. I was able to verify their status as students. They opted to pay 5-6 months rent up front instead of asking parents to co-sign! All have summer plans by July that are not here in town, so I'm not concerned about them becoming squatters. I am currently a renter myself, but I like this house and don't want to move all my furniture yet again, so before doing any of this I asked the property manager if this plan was okay and she agreed (apparently I have been an usually good tenant and they'd like me to return after my sabbatical.) I tried renting it to faculty first, but they all tried to low-ball me: turns out comp sci grad students have more money for rent.

2. Keeping all utilities in my name for simplicity. Put all bills on auto-pay.

3. I went to the nearest storage place and got the smallest climate controlled storage space, which is about 1/3 a single car garage size for $100/month. Set up some shelving and a portable clothes rack purchased from Home Depot and Walmart. Moved stuff in bedroom closets there.

4. Sold older/larger vehicle after using it to move most of the stuff in closets to storage.

5. Renting my small car to the oldest of the graduate students who is a foreign exchange student (he's in his 30's and married.) The car is old and has been repaired from a major wreck, so it's not worth much, but it runs fine. If he crashes or trashes it, then I'll just buy myself something nicer when I get back. Meanwhile, I don't have to worry about my battery going dead, and he and his wife have a way to go the 2 miles to school and get groceries. Added them to my car insurance and they are paying for that on top of monthly rent for use of the car.

6. Ate all the food in my house, which became a fun experiment in using things up that finishes this week. This morning I had smoked salmon, cream cheese, and capers on a toasted hot dog bun. I'll leave all the dishes, small appliances, cookware, spices, oils, unexpired condiments, and dry goods (sugar/flour) for the grad students to use if they would like.

7. One of the grad students offered to do all yardwork for $100 off per month, so leaving yardwork tools in the shed in the back yard. Also leaving my bicycles, coolers, and other items (like Christmas decor) that don't need climate-controlled storage in the shed out back.

8. Fido is going to live with adult child.

As you can see, I am in favor of keeping the house you own and possibly even renting it furnished (depends upon how this works in your local market and how worried you are about damage to your furniture.) The place I am renting overseas is fully furnished as well, and soon I will see if it is as nice as it looks in the photos. I did rent it through a very reputable firm (Engle and Volkers), so it's probably fine. Fingers crossed!

 

Wow, a phone plan for fifteen bucks!