Last week I introduced the topic of the Career Intermission Program. If you haven’t read that yet, you’ll want to check it out. I’ll be discussing some of the elements covered there.
When I first mentioned looking into the Career Intermission Program, I very quickly got a message.
Just out of curiosity, what would you do during the CIP? And how would you fund it?”
This post is designed to answer that question from a personal perspective.
Now, I want to be clear. I have not applied to participate in the Career Intermission Program. I have no plans to apply for it, either. If I did apply, I probably wouldn’t do it until I was approaching my next PCS, which means probably the 2019 timeframe. But even then…probably not? So don’t expect a post on “Here’s how I’m funding my three year sabbatical!”
This is just a mental exercise. But I think there is some value to it. First, I’m hoping to spur thought for you, obviously. Maybe I’ll suggest something you haven’t thought of. A way to spend your time, or good financial moves to make during CIP.
Second, I think it’s a good idea to think about what you would do if you were no longer earning a full-time paycheck – for whatever reason. I don’t think enough people plan for that. And eventually, most of us are going to be in that position. Maybe it will be for a great reason – retirement! Planned Sabbatical! Transition to a new job! Or maybe it’s for something not so fun, like a Reduction in Force. Or you separate willingly, but then have trouble finding a job. Either way, I think thinking about how you would live with a different/lower income is a good practice. After all, how can you determine how much money you need in your Emergency Fund if you don’t know how little you can live on?
So I’m going to break this post up into two parts. First, what I would do with my time if I were to take a career intermission. Second, how I would afford it and other financial aspects. I’ve got one thought in particular that you probably aren’t expecting.
Keep in mind, this post is entirely about what I would do, and wouldn’t necessarily work for your situation. If you’d like to explore that more, you can follow the process I’ve laid out below. Or, reach out to me and maybe I can do a case study!
What I Would Do If I Participated In The Career Intermission Program
Now, my plan is not necessarily what I would recommend for other people. I’m talking about not having a job for 1-3 years, as a single person. Obviously most people can’t do that. The only reason I can even entertain the thought is because I’ve been very diligent about saving money over the years. I’ve also been establishing multiple streams of income for over a decade, so I have some money to play around with.
I also realize that how I would spend this time might not necessarily be everybody’s cup of tea. But, I would see the Career Intermission Program as basically a practice run at retirement. Therefore, I’d be looking to do a lot of the same stuff I plan to do in retirement. Who knows? Maybe I’d realize how much I love working and decide I want to work longer. Again, all just a thought experiment…but interesting.
If I did the CIP for one year…
I would spend the first six months volunteering part time and building up this blog. I dream of a day where I have a cache of posts ready to go instead of finishing them the morning I publish. Ah, what a nice thought.
I’d spend the next five months hiking the Appalachian Trail. This is a semi-secret dream of mine! Meaning, I’ve told a few people but not a lot. I love hiking. I’m less enamored with the camping part, but I figure it’d be worth it if at the end I could call myself a thru-hiker. I’d spend my last CIP month recovering from the hike because I’m betting you get pretty tired!!
Note: this plan presumes I could start the Career Intermission Program at a date of my choosing. It looks like, for the Air Force at least, you can enter CIP between January and September. Given this plan, I’d enter it at the end of September to be ready to start hiking on time.
If I had two years in the Career Intermission Program, I’d still spend the first six months volunteering and building up the blog, but I’d also be looking for a house that needs some TLC. Then, I’d spend the following 8-12 months fixing it up! I’d really like to learn more about real estate, real estate investing, and flipping. This would be the perfect opportunity. After that, I’d spend the remaining time hiking the Appalachian Trail and recovering before heading back to work.
I wouldn’t do CIP for three years. I can see how it would be really great for some people, especially if you are looking after sick family or raising your children. For me, though, I wouldn’t want to be away from work that long. I truly love my career and don’t think I could be away that long. Not before retirement, anyway.
One other thing
No matter how long I’d hypothetically be in the Career Intermission Program, I’d use the time to convert some of my Traditional retirement contributions into Roth accounts. Why?
There is a Financial Independence/Retire Early life hack that involves using periods of little-to-no income to convert Traditional retirement contributions to Roth contributions. This theoretically allows you to pay no taxes on the income, ever. How? Well, for the purpose of staying on track I’m not going to explain it all here. For that, you want to read this post by the Mad FIentist.
But basically: you didn’t pay taxes on the money when you first earn it, because you put it into a Traditional account. Then, you convert it while your income is super low, so you are able to use your normal tax deductions and credits to cancel out the income you withdraw from the Traditional account. You put that money into a Roth account, and now you can withdraw the contributions and earnings tax free in the future. No taxes when you earn it, potentially no (or low) taxes at conversion, and no taxes in the future. It’s a FIREe dream.
I’m not 100% sure that I can actually do this – convert Traditional TSP contributions into Roth TSP contributions. Not every company allows it, and I haven’t seen anything (yet) that describes whether it’s allowed with a TSP. But if I could do it, I would do it. Absolutely. 100%. Every penny I could convert would be converted.
How I Would Fund The Career Intermission Program
When you are talking about funding a lifestyle, you need to be looking at a minimum of two things – your income and your expenses. Normally, you should figure out your income first and then arrange your expenses around that. However, I already know that the guaranteed income I’d have during CIP (1/15th of my base pay) won’t cover all of my expenses. So, I decided to flip the process. First I’ll determine the minimum amount I’d need to live off of, then I’ll figure out how I’d fund it.
Expenses during CIP
The first thing I would do if I were in the Career Intermission Program is use the government’s offer to move my household goods. I live in an extremely high cost-of-living area, and there is no way I’d want to stay here if I didn’t have my normal income. It’s awesome here, don’t get me wrong. But if I move, I could easily afford my entire lifestyle on the amount I’m currently paying just on rent.
Housing: Let’s assume I move home. Most likely, to save money, I would move in with family (if they’d have me!). I’d probably be able to get a storage unit for about $100/mo in my hometown. And I’d want to kick in some money for rent and utilities, even if they protested. So let’s say I would spend another $400 on that. My housing costs would be $500/month.
Transportation: Regular readers know I got rid of my car four months ago. However, I have a car fund that I started saving as soon as I paid my car off years and years ago, so I have money ready to go for that. I’d buy a reliable, late model used car with excellent gas mileage. Based on how much my last car cost me to own, run, and maintain, I’ll assume the ongoing transportation cost is $100/month.
Insurance and health care: I’m young and healthy, so I’ll say $30 for life insurance. Medical and dental is taken care of by the government, as discussed in last week’s post. Car insurance and renter’s insurance will be needed, though, so maybe another $80 for those two. That makes this category a total of $110/month.
Savings/Investments: It hurts to say this, but I probably wouldn’t be putting money into savings or investments during this time. I would be hoping the money I already have saved up continues to grow, of course, but I wouldn’t have enough income to save/invest more. HOWEVER: I would take advantage of Roth conversions, as explained briefly above. While it wouldn’t increase my current investments, it would make them even more tax-advantaged in the future. Win!
Travel: If I were to participate in the Career Intermission Program, you’d best believe I’d spend a lot of time travelling. Now, based on the fact that you still have a Common Access Card and normal base privileges, I’m thinking you might be able to utilize Space Available flights. If so, that would be unbelievably amazing. However, if that’s not possible I would be able to take advantage of miles and points that I plan to gain with my credit card churning. Still, some money will be needed for other travel expenses. Let’s call this $100/month.
Food/entertainment/pet/everything else: I would try to be frugal if I didn’t have much money coming in. Based on what I currently spend and a frugal mindset, I think I could do this for about $700/month.
- Housing: $500/month
- Transportation: $100/month
- Insurance & health: $110/month
- Travel: $100/month
- Other: $700/month
Total: $1510/month or $18,120/year
Again, I know that budget isn’t even a possibility for many people. Plenty of people wouldn’t be able to move in with their family, or travel for mostly-free, or purchase a car outright. This is just a “realm of the possible” thought experiment. For context, though, several of the people I’ve interviewed about the CIP so far decided to live on a single income – their spouse continued to work full time while they were on CIP.
Keep in mind that this entire budget is based on an at home lifestyle. During the hiking months, for instance, my expenses would be significantly less. That means I wouldn’t actually need $1510/month every month. However, I think it’s a good estimate. If some months end up having lower expenses, it would allow me to have a “slush fund” for months with higher expenses.
1/15th pay: At my rank and Time in Service, this should be about $480/month.
Rental income: Very roughly speaking, I am netting $300/month from my rental property. That’s after accounting for management, maintenance, and vacancy. Therefore, I could take that $300/month as income. If something happened to the house that required me to spend a large chunk of the house’s Emergency Fund, that might change. But for now, it’s reliable income.
Dividends: I’m currently earning an average of ~$350/month in dividends. Right now I reinvest them, but if I were to participate in the Career Intermission Program I’d want the income.
- 1/15th pay: $480/month
- Rental: $300/month
- Dividents: $350/month
Total expected income: $1,130/month or $13,560/year
That leaves me with a deficit of $4,560/year. There are a few ways I could make this up.
Option #1: renting out or selling a property if I ended up rehabbing one during my career intermission. This would probably be the best solution, although I obviously wouldn’t be able to do it until I fixed up the property. But I could possibly live in it while fixing it up, saving $400/month and ending up about even.
Option #2: using savings. This is probably what would happen no matter what. Even if I ended up earning money later into my CIP time, I would need some money up front. Luckily (?) I’ve done exactly what you shouldn’t do and kept too much of my money in cash (in a savings account) instead of investing it. We aren’t talking hundreds of thousands of dollars, but it would be enough to get me through a couple years of CIP. Why is it lucky that this money is in a savings account? Because I wouldn’t have to sell any investments to get access to it! Ergo, it’s not income and would have no effect on the Roth conversion plan. It’s a silver lining to my stupid cloud for having too much money in my savings account.
Note: this isn’t my Emergency Fund money. That would remain wholly available for emergencies. This is just “other” savings.