How to plan for a later-life ‘gap year’

I have some friends having a gap year.

No, they are not a couple of 18-year olds taking a break from their academic studies to work at KFC and find out how the world works. Instead, this is a grown-up’s gap year –  my friends are in their fifties, have sold their business and are taking a year off to do some of the things that they have always wanted to do.

They are quick to point out they have not retired.

In 12 months, they will go back to some kind of work, or perhaps a micro-business (one with no staff and requiring little capital). This is a gap year, not the end of paid employment. They will have a year or so out and go back to work, albeit work of quite a different nature.

It may be a gap year is right for you, but there are some financial considerations. First, in most cases, the mortgage should be gone.

No mortgage or other debts, means you are in a strong financial position, perhaps with some savings and certainly with something in a KiwiSaver account. The final repayment  of the mortgage is worth celebrating and maybe a just reward is a gap year.

Second, you should have saved the cash that you will need for living expenses in your gap year. The amount will depend on what you will do with your gap year: those who are staying at home to relax will probably need a lot less than those who plan to travel the world.

Also, work is not necessarily completely off the agenda because many people find some work both relaxing and social. For example, spending a summer picking fruit can feel like a holiday compared to the grind of the job or business they have done for the last 30 years.

Third, your gap year is likely to be literally life-changing, so think about what you might do when the break is over. When you re-join the world, work does not have to be what you did before but only the very wealthy would be able to stop work completely in their fifties. You may work less when you go back, but if that is the case, it is probable you will have to work longer – i.e. beyond age 65 years. Some of the gap year will be spent planning what you will do with the rest of your life, including professionally.

Not everyone could afford to take a gap year and, almost certainly, it will cost. You will not be as well off if you take one. However, I have never thought the richest person in the cemetery wins and a year off could be well worth the cost.

A grown-up gap year could be the best year of your life and, if you can make the numbers work, a break might be just what you need to set up the second half of your life.

Martin Hawes is the Chair of the Summer KiwiSaver Investment Committee. He is an Authorised Financial Adviser and a disclosure statement is available on request and free of charge, or can be found at www.martinhawes.com.

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