As the rise of “mini-retirements” takes hold among younger Australians, experts are warning of a hidden financial cost that could impact long-term retirement plans. While taking regular career breaks may seem like an appealing way to recharge, the financial consequences could be far more serious than anticipated.
The growing trend, particularly among Gen Z and Millennials, involves taking several shorter breaks throughout one’s career instead of waiting for traditional retirement. However, experts stress the need for careful planning, as these extended pauses may lead to substantial financial setbacks.
The Financial Impact of Mini-Retirements
Mini-retirements may provide much-needed time for personal growth, family connection, or mental well-being, but they come with a steep price tag. According to Colonial First State’s Craig Day, taking time off for a few months or years can result in a significant reduction in superannuation savings.
For instance, a 26-year-old who takes a year off every decade could lose 20% of their retirement savings by the time they retire. This loss amounts to a staggering $105,000, meaning Australians who embrace this lifestyle could see their retirement funds dry up six years earlier than expected.
While the immediate benefits of a mini-retirement are clear, such as time spent with family or alleviating work-related stress, the long-term consequences must be carefully weighed. “You may end up actually having a much bigger impact on your retirement nest egg than you may otherwise have thought,” said Day.
Career Risks and Job Market Challenges
Beyond the financial implications, mini-retirements could also pose risks to an individual’s career trajectory. Unlike sabbaticals, which often guarantee a return to the same role, a mini-retirement can result in extended unemployment periods.
This lack of continuous work may lead to challenges when reentering the workforce. Tammie Christofis Ballis, a recruiter with Realistic Careers, warned that frequent career breaks can damage one’s employability, as employers often seek candidates with stable work histories.
“If you keep taking career breaks, it’s not going to look good, because it looks like you’re just going to pack up and go. Employers want longevity,” said Christofis Ballis.” In addition, those returning after a hiatus may face salary reductions and increased competition from younger workers with more recent experience. As such, careful planning is critical not just for financial stability, but also for one’s career advancement.
Balancing Mini-Retirements with Financial Security
Experts, including Perth-based financial planner Fran Hughes, stress the importance of forward planning for anyone considering a mini-retirement. “We’re working longer but also we’re living longer and if we continue this trend, we might actually continue to work till age 70 and only have a short period of time that is 10 years to enjoy our golden years,” said Hughes. The key is balancing the desire for time off today with the need for long-term security, ensuring that one’s retirement years aren’t compromised.
As Australia’s average retirement age continues to rise, with men retiring at 66.2 years and women at 64.8 years, planning for retirement has never been more important. Ultimately, individuals must weigh the short-term rewards of mini-retirements against the long-term costs to ensure a fulfilling retirement without financial strain.
