Whether you’re raising a young family, going back to school or becoming the caregiver for a loved one, there are a multitude of reasons why your personal life may warrant a pause in your professional one. And if you’re considering taking a break from your career, you’re not alone: A 2022 LinkedIn survey of 23,000 global workers indicated that nearly two-thirds of respondents had taken some sort of career break.1
But before you turn in your laptop or hang up your stethoscope, make sure your finances are ready to support your time off.
Before you step away from your professional role, take a moment to evaluate your current living expenses. As you do so, consider separating your expenses into three buckets:
As you add up these expenses, think about the new financial implications that may come with this career break as well. For example, will you be paying tuition if you’re going back to school? Will you need to start paying a higher premium for private health insurance? Then, once you have your totals calculated, you’ll know how much you need to budget to cover your day-to-day expenses. If the number is intimidating, remember that you likely have the ability to cut back on your discretionary expenses – so consider where you can make sacrifices to stay on budget.
If you’re taking extended time off work, you’ll want a savings fund dedicated to covering your living expenses. While you may have other savings or investment accounts earmarked for emergencies or retirement, you should try not to pull from them. Dipping into your retirement fund before age 59 ½ is taxable, plus it likely triggers a 10% penalty – and your emergency fund should be saved for true emergencies.
The savings account you create for your career break should be both liquid and secure, so consider options like bond and money market accounts. And when it comes time to fund the account, see where you can redirect funds from other non-retirement or emergency accounts, park your bonus or severance checks or even sell assets like a second car.
Before you initiate your career break, work down as much debt – particularly high-interest debt – as you can. This way, you can lighten the monthly payments you’ll need to keep paying while on a reduced income.
If increasing your debt payments prior to your break isn’t realistic, look for other ways to ease the burden. For student loans or mortgages, refinancing can help lower your interest rate, reduce your monthly payments or even change the repayment timeline. Debt consolidation is another option, combining multiple loans into one with a potentially lower rate.
After you leave your job, you won’t be able to contribute to employer-sponsored retirement plans anymore, like a 401(k) or 403(b). And unless you still have earned income during your break, you won’t be eligible to contribute to an IRA either – that’s why it’s important to maximize your retirement contributions before stepping away. In 2025, you can contribute up to $23,500 to your 401(k) and up to $7,000 to your IRA (or more if you’re age 50 or older).
If you’re married, you may still be able to grow your retirement savings during your break through a Spousal IRA. This option allows a non-working spouse to contribute to an IRA based on the income of a working spouse, helping you stay on track with your retirement goals even while you’re temporarily out of the workforce.
Taking a break from your career warrants a fresh look at your investment portfolio. Likely, your risk tolerance will shift as you enter a stage with less income – so rebalancing your portfolio is key. With your Baird Financial Advisor, make sure your portfolio has a mix of both liquid and long-term investments. This way, you can continue building for long-term goals while keeping liquidity for your short-term needs.
Similarly, if you’re currently contributing to accounts like Health Savings Accounts (HSAs) and 529s, consider making lump-sum contributions before you take your break. This way, you won’t have to include the contributions in your regular budget while you’re not working.
Once you leave your job, you’ll lose access to employer-sponsored benefits. While some of these are more obvious, like your health insurance plan, others are easier to forget about – like tuition reimbursements or discounted gym memberships. If this is the case, be sure to take full advantage of these offerings before you head out on your break.
You’ll also want to price out the alternatives for your current benefits. For health insurance, you might join a spouse’s plan or explore private coverage and marketplace options. Finally, check your employer’s policy on unused sick or vacation days. Any remaining PTO may allow you to keep getting paid for a bit beyond your separation date.
When you take a career break, your taxable income will likely drop – potentially placing you in a lower tax bracket. This can reduce your overall tax liability and create opportunities for strategic moves, like Roth conversions and tax-loss harvesting. If you get severance pay, unemployment checks or earn money from freelance during your break, remember it still counts as income – and you may need to pay taxes on it throughout the year instead of waiting for tax season. Work with your Baird Financial Advisor and CPA to best navigate these changes.
With the right strategy, your time away from work can support both your personal goals and long-term financial security. Partner with your Baird Financial Advisor to develop a plan that’s tailored to your situation – so you’re not only prepared for your time off, but also ready for a confident return to the workforce when the time comes.
The information offered is provided to you for informational purposes only. Robert W. Baird & Co. Incorporated is not a legal or tax services provider and you are strongly encouraged to seek the advice of the appropriate professional advisors before taking any action. The information reflected on this page are Baird expert opinions today and are subject to change. The information provided here has not taken into consideration the investment goals or needs of any specific investor and investors should not make any investment decisions based solely on this information. Past performance is not a guarantee of future results. All investments have some level of risk, and investors have different time horizons, goals and risk tolerances, so speak to your Baird Financial Advisor before taking action.
1 Groysberg, Boris and Lin, Eric. “Research: Resume Gaps Still Matter.” Harvard Business Review, 2024. https://hbr.org/2024/07/research-resume-gaps-still-matter
