Planning a Sabbatical

The Dream Life

How often do you find yourself comparing your life with those “living the dream?” We constantly fill our time with these thoughts. Buy this product and your life will dramatically improve. Take this action and your life will have no worries. One evening while watching TV or one morning while on your way to work, count how many times you hear this message.

Eventually, we buckle to this Chinese-water-torture-style marketing. Even when the messaging does not convince us to buy, we still compare our lives to those living the dream. For example, consider how our society reveres Hollywood stars, the wealthy, and the powerful. We look at them and tell ourselves, “If only I could have this, my life would be complete.” These lives play out with leisure and are full of happiness. Or at least, this is what we think.

How can you get more of these features in your life?Enter the sabbatical. Often, we associate a sabbatical with the college professor who takes time off to study or travel the world. However, many companies provide a sabbatical as an employee benefit. Charles Schwab is one example. For every five years of qualified service to the company, the employee receives one paid month off. The employee may still use his or her normal vacation during the year as well. As you can see, this allows for many possibilities.Still, most companies, primarily small ones, cannot provide this benefit, which keeps the sabbatical at bay.

How about those people who have the dream life?

Take two sailing stories, for example.

Brian Trautman and his crew produce the popular YouTube series “SV Delos” and have had many favorable life experiences. Brian was a software engineer who worked 70-hour weeks (2.) He notes in his blog, “My priorities were a lot different then and I lived to work rather than worked to live (2.)” Bitten by the sailing bug, Brian developed a four-year plan to travel the world that involved reading as many sailing blogs and as much sailing material as he could. The four-year plan included Australia as a destination and a budget to get there.

Once the sailing fund emptied, the crew had to find ways to pay for their adventures. In a popular blog post, Brian lists four of their early practices for continuing the journey.

  1. Brian would work remotely a few hours each day on IT projects (3.)
  2. The crew would work as hard as it could in the off-season, saving money to fund the next season (3.)
  3. Everyone paid his or her own way, including family and friends who visited (3.)
  4. They took advantage of moneymaking opportunities whenever and wherever they could (3.)

Brian also notes that part of the success of the Delos journey originates from the frugal nature of sailors. “… (C)ruisers are incredibly cheap. Imagine the cheapest person you know, then double their level of cheapness. Most cruisers are still even cheaper than this, and for good reason. The majority of people are trying to stretch every cruising dollar- just like you.”

The cost of this lifestyle is great, not necessarily in money terms, but in terms of opportunity by missing time spent with family and friends. Brian notes that if the journey wasn’t this way, it wouldn’t be worth it.

The second sailing story focuses on SV LaVagabonde. The crew of LaVagabonde, Riley and Elayna, are world cruisers like the crew of the Delos. To fund his adventure, Riley notes, “For eight long years, I worked offshore on oil rigs and in the mines of Western Australia, saving every dollar possible to be able to afford a halfway-decent Yacht (5.)” Riley also spent significant time studying where to buy his boat. He found that Europe was much cheaper than Australia.

Here are a few tips from Riley and Elayna to keep things moving.

  1. Research a place before you go.
  2. Let others be generous towards you. You both may enjoy it.
  3. Try to find an internet cafe or library instead of a restaurant.

For purposes of a sabbatical, not only will this help you save money if you are traveling, but it also points out the implied benefit of using the free services you may have access to use.

Today, both crews are gaining support through Patreon, a website through which fans can contribute to supporting a group in creating videos, music, and webcomics (4.) They are doing what they love and are giving back by sharing videos that have turned a sabbatical into a new way of life.

Examine the why for your sabbatical

Taking time off work is valuable in terms of preventing burnout and getting to spend time with family and friends. However, taking extended time away from work does not necessarily make for a sabbatical. Rather, it becomes an extended vacation. A sabbatical requires a cause or purpose for taking time off from work or your current life. The second differentiation between a sabbatical and a vacation is the cost. If the cost is not high, you may be justifying an extended vacation. Think again about the cost our sailors have paid in missed time with family and friends.

The purpose of a sabbatical typically shows up in a person’s core values in the form of goals and objectives. notes, “The most meaningful sabbaticals are planned ones – with specific goals and objectives designed to benefit both you and your company.” Do your core values show up in your reasoning for the sabbatical?

Sabbatical benefits

A workforce experiences many benefits from sabbaticals. For starters, when an employee takes a sabbatical during a recession, the company can reduce expenses while the employee takes the time to pursue a lifelong dream. Also, the company may be able to save enough money to avoid layoffs during an economic downturn (6.) While management and executives are away taking their own sabbaticals, someone will need to step into the empty role for a short period of time. There is value in creating impromptu training for the next worker who may occupy the role (6.)

Beyond the benefits to the company, sabbaticals provide an important intercultural financial practice – learning what it’s like to spend the money you saved. Unlike most Americans, who have a spending problem, those who save for decades often develop the habit of reducing their spending while still collecting cash. While such an action is noble, retirees often experience a strong urge to not spend in retirement. They forgo life-changing opportunities. The benefit of a self-funded sabbatical is that it gives you the experience of enjoying your money along the way. Later, when you cannot work or officially retire, spending the money does not become an issue. The biggest benefit involves the fact that saving and planning habits have already been settled. You get to enjoy “retirement along the way.”

How younger workers may use a sabbatical

Millennials have gained a reputation for changing jobs often. noted in an article last year that about 50 percent of Gen Y planned on staying at their current employer (7.). Sixty percent were open to new opportunities (7.) The article also pointed out that only 29 percent of Millennials are emotionally and behaviorally engaged with their jobs or companies.

The reasons for these frequent job changes are not discussed here but are brought up to explain the opportunity that exists in the practice of changing jobs often. The self-funded sabbatical may be a perfect opportunity for this generation to find more happiness and fulfillment while highlighting the financial behaviors discussed above. However, when planning a self-funded sabbatical, it is important to avoid missing any important benefits, like vesting (the schedule of how long an employee must work at a company before the employer’s match becomes the employee’s property) of company matching on 401(k)s. Sometimes, the vesting period lasts up to six years.

Delaying a traditional retirement may be a setback for younger workers who plan on taking several sabbaticals during their professional careers. Time away from work may result in periods of not saving money or, worse yet, dipping into savings earmarked for senior years.

However, while some non-Millennials aren’t willing to even consider the idea of a self-funded sabbatical, younger workers may be willing to take on this risk that may require working later in life. In fact, there are several benefits to working after the age of 65.

-Living longer. An Oregon State University study found that “working past age 65 could lead to longer life, while retiring early may be a risk factor for dying earlier.”

-Employer benefits. You may be able to get health insurance, paid vacations, and other traditional benefits.

– Reduced withdrawals from your portfolio. Because you are earning income, the needed withdraws from your other assets should lessen

– Social. Many people do not realize the importance of interacting with peers. This keeps our minds engaged and can increase happiness.

Mechanics of a self-funded sabbatical

Let us assume that you have completed the process of determining why you want a sabbatical and you agree that you can use this self-created benefit as you advance in your career. Now it’s time to figure out the funding. To complete this, we need a fictional case study to explain the math. Our example will not consider taxes and other important things like health insurance. This is where the benefit of working with a Certified Financial Planner may be realized.

Consider Jan, who is in her early 30’s and has been moving from job to job every few years as she climbs the corporate ladder. Currently, she makes $65,000 a year and would like to take a one-month sabbatical to help a not-for-profit take care of disadvantaged youth. Jan is considering taking this sabbatical in either 36, 48, or 60 months and is interested in determining what she needs to save each month to carry out this goal.

If Jan will need $5000 for use in 36, 48, or 60 months she will have 35, 47, or 59 months to save while she works. Jan will have access to different vehicles to save the money, like CDs, bond mutual funds, stock funds, and money market funds. Jan likes to play it safe and isn’t willing to subject her savings to variations in the stock or bond market. She will be using low-yielding instruments like CDs or money market funds. Jan can save the following amounts every month to amass her $5000.

Time to Sabbatical Required Monthly Savings

60 months-$84.75

48 months-$106.38

36 months-$142.86

If Jan has some flexibility and reasonable outlays, she should be able to accomplish her goal of saving $5000. Even if she runs a tight budget, Jan will likely be able to cut out a low-value cost to live her dream experience.

Let’s take the example a step further. Assume Jan spoke to a friend who recommended she invest the monthly contributions into moderate-risk items like bond mutual funds and a small portion into blue-chip stocks, creating a return of three percent yearly. How would Jan’s required monthly savings change?

Time to Sabbatical Required Monthly Savings Earning 3%

60 months-$ 78.75

48 months-$ 100.39

36 months-$ 136.87

As you can see, the power of compounding reduces Jan’s needed monthly contribution. The longer the time until she takes the sabbatical, the larger the benefit from letting the money work. Either savings plan will make Jan happy. The money and regular action of saving are simply the means to the end of Jan being able to work with the disadvantaged children. Both plans are doable.

On a side note, you may even be able to include some of your work benefits, like unused vacation time, to fund the sabbatical. Although this makes the calculation more complex, working it into the picture may reduce your needed monthly savings. However, you may be forgoing the use of vacation time along the way.

How does a self-funded sabbatical affect long-term savings?

Jan’s savings will put her on track for her sabbatical, but she cannot forget about the long-term picture. She will somehow need to make up the missed savings for the month when she will not be working. With moderate increases in her long-term savings (on top of the savings required to fund the sabbatical), she will be able to keep her retirement plan on track as well. Jan can increase her retirement account savings by one of the following amounts to make up for the month she will not be working.

Time Until Sabbatical Required Increase in Monthly Retirement Savings

60 months 1.69%

48 months 2.12%

36 months 2.85%


Next steps

If you plan on working self-funded sabbaticals into your career, make sure you follow the correct steps.

– Identify the why behind your sabbatical.

– Decide how long you want to wait before taking the sabbatical.

– Figure out your monthly savings requirement and the adjustment to your retirement savings plan.

– Start saving and investing.

– Enjoy the sabbatical.

Should you have any questions or concerns, please feel free to contact me at 317-805-0840 or



1.h”What Are Sabbaticals?” What Are Sabbaticals? | yourSABBATICAL., n.d. Web. 19 June 2017. <>.

2. Trautman, Brian-trautman. “How do we afford to sail? (Part 1)–By Brian.” SV Delos. SV Delos, 02 Mar. 2017. Web. 19 June 2017. <>.

  1. Trautman, Brian-trautman. “How do we afford to sail? (Part 2) -By Brian.” SV Delos. SV Delos, 02 Mar. 2017. Web. 19 June 2017. <>.
  2. h”How can we help you?” Types of questions. N.p., n.d. Web. 19 June 2017. <>.
  3. “How I Bought The Yacht and Afford to Sail.” Sailing La Vagabonde. N.p., n.d. Web. 19 June 2017. <>.
  4. “Facts and Figures.” Facts and Figures | yourSABBATICAL. N.p., n.d. Web. 19 June 2017. <>.
  5. Gallup, Inc. “Millennials: The Job-Hopping Generation.” N.p., 12 May 2016. Web. 19 June 2017. <>.
  6. Schlesinger, Jill. “Working past age 65 has many benefits.” Chicago Tribune. N.p., n.d. Web. 19 June 2017. <>.

The Financial Planners Plan: Emergency Funds

If I received a nickel every time someone asked me for financial advice, I would be rich. Around the cooler, in the grocery store, and at family gatherings are just a few of the places where people seek information. “What should I buy?” or “What is hot in the markets these days?” When I explain that financial planning yields better results than just managing an investment portfolio, people quickly agree and follow up with “What is the outlook for the economy?” Most advisors enjoy these conversations because of exciting gains or “knowing the most about capital markets.”

I, however, think it is time for a different post. This blog post outlines the realities of the Carmany household and how we deal with the challenge facing us. Now we must rebuild our emergency fund.

Basics of an emergency fund

While studying for the Certified Financial Planner designation, potential certificants learn about the importance of an emergency fund. “Save three to six months’ worth of expensesEmergency fund in case an emergency happens.” This cornerstone is usually one of the first steps in a financial plan. Often, I find people misusing the fund for nonemergency conveniences. What is an emergency? The web defines an emergency as “a serious, unexpected, and often dangerous situation requiring immediate action.” Buying a TV or taking a last-minute trip to get away from stress are not emergencies.

I will admit, my own past demonstrates abuse of earmarked emergency funds. For example, we bought our last car out of convenience rather than to meet a need. See, my family was getting ready for one of our annual trips to visit family. Our normal hustle was under way for our departure the next morning. The yard needed to be mowed, and our SUV needed to be pulled out of the garage so that we could access the mower. As soon as I started the car, I noticed it was running funny. My first thought was to deal with it after mowing the lawn. Once I looked over the SUV and completed my research, I found two bad sensors to replace. (We were going to take the SUV on our trip.) I had no idea how to deal with this riddle. I thought about it as we closed up the house for the evening. Amazed at the string of bad luck (the washer and window also broke the same evening), I quickly went out and bought a new SUV for my wife (one she likes) on credit the next day using part of our emergency fund as a down payment, all because I did not want to slow down and deal with the situation.

We recovered and have since moved on from the car buy.

My current situation

Currently, as I write this, my family faces our second and much larger emergency fund depletion. This time, however, it is real, as in “not having water turns the household upside down.”

We moved three years ago to a bigger house as our family expanded with my youngest daughter. I did not plan to move at first, but a couple of months after my wife, Yvonne, found out she was pregnant, she set a hard date. July 15 became our deadline and we had four short months to find a home, get our current home ready to sell, and move.

We made the deadline with time to spare and have been happy with the choice we made. There have been large outlays. The largest one so far is getting 85 percent of the house Billreplumbed. The water pressure from our well had been slowly dropping, so a plumber suggested that we replace our well pump and a few other items. The total cost: roughly one month’s expenses. After getting the work done, the plumber took the time to discuss with us the problems present in our current plumbing. He explained that his current fix may last a short while or longer. Guess which one it was? Two weeks later, here we are, getting the home refitted with new plumbing. The original pipes were not up to code and cheap material had been used. (I experienced personally how cheap it was, as one of the pipes cracked in the wall.) Total cost: several months’ worth of expenses.

The good news is, the house will be updated and our family will be able to get back to business as usual. Or will we?

Now what?

I now remember starting the emergency fund a long time ago. “Saving at $XX/ month, it will take T months to get back to the correct reserve amount” runs constantly through my mind. Additionally, the time taken away from funding other luxuries for the family will be put on hold. “Why did we buy THIS house? Why do WE have to wait to fund these other goals (which are luxuries)?” Sound familiar? It feels like starting at square one.

But I am not starting at the beginning. We now have the experience of dealing with a real emergency (having no water for the family). No credit card debt, no hassle over how to pay for it.


I hope sharing this post shows: 1. Financial planners are subject to the same pitfalls and challenges as the families we help. In many cases, the planner does not practice the sameTransparency techniques he preaches. 2. Many articles discuss the importance of an emergency fund, but do not discuss the next step after it has been used.

In my family’s case, the second family trip for 2016 will be placed on hold. We will get back to the practice of building the fund to a suitable level by cutting costs. In the back of my mind, I do wonder about another emergency taking place. What will we do with no emergency fund?

In this case, we will start moving down the line of liquidity. We have additional investments in taxable accounts which are accessible.

As we make progress in building our emergency fund, I will share updates. When you meet with your advisor, ask him about emergencies he has experienced and how they were addressed.

If he does not practice the same techniques he teaches, you may need to look for another advisor. I believe a great advisor practices the same techniques that his client does. In this case, I know firsthand how the process works (the bucketing system) and I help people maneuver through the emotional turbulence of the situation.

If you have questions about building an emergency fund or about the bucketing system, or if you just want to share your story, please feel free to contact me at or 317-805-0840.




Health Savings Accounts: Possible Retirement Supplement

Health Savings Accounts: Possible Retirement Supplement

How often does one find the need to balance financial priorities; college or retirement, emergency fund or the family vacation?  Rarely, does an opportunity come through the tax code similar to what a Health Savings Account, HSA, provides.  As it currently stands, a large portion of “traditional” health plans is going away, while being replaced with the high deductible care options in order to help contain costs.  It is each employee’s responsibility to weigh options which may become a monumental task.  Let’s examine what this tool is and how to use it.

What is an HSA?

An HSA is a tax-favored account used in conjunction with a high-deductible health insurance plan. The account should receive funds for healthcare related expenses.  The list of possibly covered items includes things like some premiums (please see IRS Publication 502 for more details), deductibles, vision, and dental expenditures.

As previously mentioned, one needs to be covered under a high deductible plan in order to have an HSA.  For an individual, the plan must have a $1300 deductible and $2600 for a family.  Contribution limits to the plan are capped at $3350 for the individual and $6650 for a family.  Additionally, anyone over the age of 55 may contribute another $1000 for the year.

How does the HSA work?

With your plan, contributions are tax deductible as an adjustment to income and the distributions are tax-free if used for qualifying medical expenses.   Once your insurance deductible has been met, your insurance provider will cover expenses in accordance to the plan provisions. You may use the HSA funds as previously noted to cover premiums in addition to hearing aids, eyeglasses and contacts, chiropractor, stop smoking programs, and several other items.  However, funeral expenses, cosmetic surgery, and weight loss programs are not covered. (For a full list of covered and ineligible expenses, please check with your HSA provider.)

The other important aspect of the account is the fact you may keep the monies in the account as long as you need them.  It is a “not use it or lose it mandate” similar to a flexible spending account making the HSA more attractive for longevity.  In fact, you may even be in a position where you contribute and later move to a non-high deductible plan and still withdraw funds for qualified expenses from the account.

How can an HSA be used as a retirement income supplement?

One of the lesser known provisions of the tax code involves the fact anyone over the age of 65 may withdraw funds from an HSA for living expenses. Pre age 65 withdraws for ineligible expenses are included in taxable income and subject to a 20% penalty.   For age 65 or older, withdrawals for non-medical expenses, the amount is taxable, but the penalty is avoided.

Other noteworthy aspects currently include, currently no required minimum distributions, the account may initially be funded with one year’s deductible from an IRA or Roth IRA (ongoing SEP’s and Simple IRAs are not eligible), and many providers have investment options attached to the account.

If you do elect to use the investment options, make sure you keep enough cash available to cover your medical expenses. The excess funds invested may be used as a backup in case the liquid portion of the account is spent.

The health savings account allows a family to maximize contributions while not feeling comprised about saving for retirement.

Pit Falls

Most importantly, the HSA should not be used as a replacement for retirement savings accounts, but rather as a supplement.  As mentioned earlier, the penalty for nonqualified expenses is 20% versus the 10% penalty on most IRAs.  The contributions, if coverage is for a single individual, are lower when compared to IRAs.  If investment options are available, there is usually only a hand full.

Review your health care plan options with your employer or insurance agent.  Weigh your options and include the HSA as part of your overall financial picture.