Quit work for a year: Here's how

By MSN Money staff

Take a year off.

Could anything sound more wonderful and less realistic? Yet thousands of people just like you do it every year.

Maybe you want to travel, go back to school, spend quality time with your family, volunteer or pursue a hobby full time. Not many employers will foot the bill, but an increasing number will welcome you back once you're refreshed.

Yes, you are probably going to end up with less money a year from now, five years from now and 20 years from now. The goal is for you to plan your time off in advance, make sure you can swing your finances so you don't have money worries while you are supposed to be de-stressing and not find yourself saying, "I wish I had never taken that time off -- it just wasn't worth it," at any point in the future.

It sounds great in theory, but how do you pull it off and keep your financial goals -- such as a secure retirement -- on track? Here's how:

Don’t quit your day job

A leave of absence is (usually) better than quitting and looking for a job later. Unless your financial situation is secure and you don't need the group health insurance available through work, try for a leave of absence.

If an employee wants to take a personal-enrichment break, says John Challenger, the CEO of Challenger, Gray & Christmas, a Chicago outplacement consulting firm, "companies are much more agreeable about working out an arrangement that allows them to come back."

A 2007 survey of nearly 600 U.S. companies by the Society for Human Resource Management said that though only 4% offered paid sabbaticals, 17% made some form of unpaid leave available. Those percentages, which have held steady for several years, are likely to rise in a tight job market.

Understand, however, that your employer can't keep your specific job open forever. The longer your sabbatical is, the less likely it is that you will be able to come back to your current position.

Accept that it's going to cost you

Unless your employer offers you paid sabbatical time, you're going to have to take unpaid leave (or resign outright).

Many a person has taken a sabbatical and rationalized the hit to the pocketbook with "I will be a better worker and much happier and focused, so I'll end up making much more money."

That's great if it happens, but don't count on it. If anything, after a sabbatical you might decide you don't want to work as hard or that you want to change your career to something less lucrative and more altruistic.

If we all lived life "by the numbers," we would never take vacations or sabbaticals, would never have kids, and we would never do anything unnecessary that costs money. There are some things that money can't buy, and a sabbatical may be just what it takes for you to find it.

Crunch the numbers

The first step in determining whether a sabbatical is doable is to set goals for your time off, says Frederick McNair, the president of McNair, a McLean, Va., financial-planning firm. This doesn't mean planning every day. It does mean thinking through exactly what you want to achieve, both practically and personally. Once the what, where and when are known, a good approximation of the cost can be calculated.

We know this takes some of the spontaneity and fun out of the planning, but you need to know the bottom line in order to know how much time you can afford to take off. If you don't do it now, keep a detailed record of your monthly expenses for six months, subtracting out work-related costs (such as dry cleaning, lunches out, commuting costs) and adding in the extra costs of your sabbatical plans (such as travel and home renovation).

Don't forget to also add in expenses that your employer pays now but that you will have to pay if you take a leave of absence or quit (such as medical expenses). Multiply your monthly basic expenses times the number of months you plan to be off work and add in the extra costs of your sabbatical activities. Unless you will have a job waiting for you upon your return, add at least three months for job hunting.

Will someone else foot the bill?

Now that you know how much money you will need, you have to come up with it. There are two basic ways to finance an unpaid leave: Someone else pays, or you do.

Denver architect Ken Berendts has taken two sabbaticals in his career. One was paid for by a Fulbright scholarship that his wife won. The other, in New Guinea, was covered by their earnings as Peace Corps volunteers.

Perhaps you could find a temporary job that fits in with your sabbatical goals. There is seasonal work out there -- with national and state parks and resorts, for example -- that offers a breathtaking change of scenery and the opportunity to be self-supporting while you rejuvenate.

Check out CoolWorks.com to get an idea of what's available.

You might try piggybacking family leave. The federal Family Medical Leave Act guarantees certain employees up to 12 weeks a year in unpaid leave to care for a newborn. Combine that with the fact that 17% of companies responding to the SHRM survey said they offered paid paternity leave, and 18% paid maternity leave beyond what's covered by short-term disability, and the opportunity exists to combine child care with self care.

Or will you pay for it yourself?

You must be in the strongest financial shape possible. To begin, credit card balances, car loans and, if possible, home mortgages should be paid off. If a mortgage can't be paid off, the possibility of refinancing the loan at a better rate should be investigated, as should renting out the property to cover the monthly payment.

The next step is developing a strategy to produce the cash needed to tide you over during the sabbatical. Consider:

A home-equity loan. Borrowing against the equity in a house is especially attractive because in most cases interest paid on the loan is tax-deductible. You could also go for a home-equity loan, but take the loan proceeds well before you announce your plan for a sabbatical. If you are on unpaid leave, it's going to be hard to get that loan approved.

• Portfolio realignment. The goal here is to maximize cash flow -- say, by shifting money from bonds into money markets to capitalize on rising interest rates or by investing in dividend-paying stocks to take advantage of the reduced tax rate of 15% on qualified dividends, or by offsetting capital gains from the sale of appreciated stocks by selling other securities at a loss. If you take money out of investments, subtract the capital-gains tax you will have to pay.

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