While the idea of sabbaticals—a paid leave for workers to travel, study, or explore interests—is relatively niche in the US, the concept is starting to gain steam in specific industries.
And, it appears that taking a sabbatical can have some added benefits, which makes sense because you don’t have to look far to come up with reasons why a paid 6 to 12-month break from work could be beneficial. But, according to The Society For Human Resource Management, just 12% of companies offer an unpaid sabbatical program, and only 5% offer a paid sabbatical program.
So all that to say, if you’re interested in taking a sabbatical, you may have some hurdles to overcome. But in the end, it could be well worth the effort, cost less than you anticipate, and even create unique financial planning opportunities.
Let’s explore in more detail below.
What Is a Sabbatical?
At a high level, a sabbatical is an extended break from work.
Sabbaticals can be paid or unpaid, often ranging from 6 to 12 months. They’re most common among university professors, with the typical professor taking one year of sabbatical leave for every seven years of tenured work, according to the Higher Education Recruitment Consortium.
Traditionally, this has been a time for professors to step out of the day-to-day teaching and refocus on another area of their studies.
It’s also viewed as a time to recharge, refresh, and renew your energy for work.
What Are the Benefits of a Sabbatical?
To better understand the benefits of a sabbatical, it can be helpful to look at one physician’s personal experience.
At the American Academy of Family Physicians, Bruce Davis, MD, writes about his experience taking a 12-month paid sabbatical.
He writes:
“The idea of a sabbatical was not new to me.
Our employer, Group Health Cooperative of Puget Sound, gives its 650 or so physicians the option, every 10 years, of taking a year-long sabbatical. Experience has shown that people return from sabbatical renewed and refreshed, often bringing new skills to their patients or their practice. The organization doesn’t restrict how physicians spend their sabbatical time.
However, most physicians use the sabbatical to combine personal renewal with medical learning.
During the sabbatical year, physicians are paid 30 percent of their salary.
Most supplement their sabbatical pay with savings to cover the costs of travel and other expenses. The 30-percent pay rate helps keep the program cost-neutral because it is roughly the difference between the compensation of a 10-year physician and the cost of hiring a physician to fill in during the sabbatical.”
For Bruce, his sabbatical taught him many lessons, and he chose to focus his time on four specific areas:
- Career: Finding new ways of acquiring knowledge and skills he could bring to his patients.
- Family: Improving his connections with his wife and three kids, ages 16, 25, and 26 at the time.
- Community: Getting more involved in his church, activities with friends, and volunteering in his community.
- Self: Developing a meditation practice, relaxing more, and prioritizing himself.
In the end, Bruce writes that:
“I once told myself I would never take a sabbatical because it would be too hard to go back to the demands of work. It turned out not to be so.
I returned to my clinical work with gusto. What a great opportunity it is for family physicians to participate in the health and well-being of the people who come to see us! In burnout, that opportunity is harder to see.”
Bruce was able to gain many benefits from both a personal and career standpoint. This allowed him to return to work refreshed, with a newfound gusto for his work. So, if you see the benefits and are interested in a sabbatical, it’s essential to calculate the costs.
How Much Does a Sabbatical Cost?
For most physicians, the decision to take a sabbatical may come down to the cost; more specifically, how this decision will impact their long-term financial planning goals. And while each situation is unique, with some employers offering to pay all or a portion of your salary and others not, here are some things to consider:
A recent article from Kitces.com titled “Sabbatical Financial Planning: Taking Extended Time Off Without Derailing The Career or Retirement” explores a client case study to illustrate potential costs.
In the end, they found that taking a year-long sabbatical only pushed the client’s estimated financial independence age by one year. This makes sense intuitively: by losing one year of income, these clients needed to delay retirement one year to reach financial independence.
This assumed they were not drawing from retirement to cover their year sabbatical costs, had an unpaid sabbatical, and, most importantly, could return to work at their pre-sabbatical earnings.
And while this may not be the case for everyone, it’s at least an excellent framework to begin the conversation with your fee-only financial advisor or trusted financial professional.
There May Be Some Unique Tax Planning Opportunities
And lastly, a sabbatical can present some unique tax planning opportunities.
That’s because a year-long sabbatical could mean a lower or no-income year, which can be a great time to do Roth conversions. Roth conversions are when you take pre-tax retirement funds, like Traditional IRAs or 401(k)s, and convert them to Roth funds. There’s no limit to the amount you can convert each year, but the entire amount of the conversion counts as taxable income.
So, if you’re in the 32% tax bracket in a typical year, any amount of Roth conversions can be taxed at 32% or higher.
But, if you’re in a low or no-income year, you’ll have a much lower marginal tax bracket. So then, you can do Roth conversions while maintaining a much lower tax bracket than in an average year, potentially offering you significant tax savings while moving more money into Roth accounts.
IMAFS Is Here to Help
If you’re looking to work with a CFP® professional to help outline your unique financial plan while exploring sabbaticals, tax savings, investment portfolios, and more, then IMAFS is here to help.
As a fee-only financial service offering wealth management for doctors, IMAFS has a team of fiduciaries in Boise, ID, and the surrounding areas, ready to help clients build long-term wealth while maximizing the enjoyment they receive from their money.
