Taking a career break can be both exciting and daunting, whether it’s for parental leave, raising your children, an extended holiday or a sabbatical. While having a career break can be incredibly rewarding for personal growth and/or family bonding, planning ahead is crucial to ensure your finances remain intact during your time away from work to avoid financial strain and ensure your long-term financial goals remain on track.
1. Assess your Financial Situation
Before taking a career break, it’s important to have a clear understanding of your current financial position. This includes knowing your monthly expenses, outstanding debts and ongoing financial commitments. Additionally, it’s important to plan for any additional discretionary spending that might be necessary during your break, such as childcare costs or travel expenses.
Consider how long you plan to be away from work and how that will impact your income. Understanding the financial implications of your break’s duration will help you set realistic savings goals and create a financial plan that supports your time away. We have a handy budget planner to help you get a clear view of your income and expenses.
2. Safeguard your Super
In relation to retirement planning, a career break can have a significant financial impact on your super. A career break may result in a pause or reduction in your super contributions and over time, this can lead to a substantial shortfall in your retirement savings.
To protect your superannuation and lessen the impact of your career break, consider the following strategies:
a. Making additional super contributions while you are still working
Building your super before taking a break can maximise your retirement assets while you are still earning. Consider making additional contributions into your super, taking into account contribution caps, to boost your super balance for the long-term.
b. Contribution Splitting with your Spouse
If you have a spouse or partner, they may be able to contribute to your super on your behalf during your career break. This can help maintain the growth of your super, even when you’re not working. Super splitting, where your spouse transfers a portion of their concessional contributions to your super account, can be an effective way to ensure both partners’ super balances remain on track. It also helps balance your super between partners, ensuring that your respective accounts continue to grow.
c. Catch-Up Contributions
If you’ve previously contributed less than the concessional cap, the government’s catch-up contributions initiative allows you to carry forward unused cap amounts for up to five years. This can be a valuable strategy to make up for lost contributions once you return to work, ensuring your superannuation balance remains healthy.
3. Building Wealth Before Taking a Career Break
Before taking a career break, consider how investing and building wealth in advance can support your financial stability during your time off. Investments that generate dividends or investment income can provide a flow of funds that can assist in meeting your income requirements. By growing your wealth outside of super before your break, you can create a financial cushion that supports your lifestyle and helps you avoid drawing down on your savings too quickly.
Building wealth before your break also positions you to return to work on a part-time basis if desired. With a robust investment portfolio and passive income streams in place, you can enjoy greater financial flexibility and maintain your standard of living without relying solely on your salary. If you would like to consider your investment options and to establish an appropriate investment strategy that suits your needs, reach out to a Wealth Consultant here to explore this further with a free, no-obligation consultation.
4. Review your Insurance Policies
It’s important to consider your insurance policies when taking a career break, particularly if your policies are linked to your employment status. Life insurance, Income Protection and Total and Permanent Disability (TPD) insurance can often be held within industry super accounts, and a break in employment may impact these policies.
Income protection Insurance: Review your Income Protection policy to understand whether it covers periods of unpaid leave. Some insurers may require you to inform them you are going on a career break and allow small changes to the benefits to accommodate this, while others may require adjustments to the cover to ensure you remain protected. Depending on the policy it may provide you with the financial support in case of illness or injury that prevents you from returning to work.
Life and TPD Insurance: Ensure that your Life and TPD insurance policies remain adequate during your career break. If your policy is tied to your superannuation, check that there are enough contributions being made to keep the policy active. Under the law, super funds can cancel insurance in super accounts that are deemed ‘inactive’ if your account hasn’t received a contribution for at least 16 months. If necessary, you may need to notify your super fund or consider making additional contributions to maintain your coverage. Should you be in the process of preparing for a career break and you would like your insurance needs reviewed, it would be best to speak with an expert DPM Insurance Consultant to ensure you are suitably covered.
5. Consider your Estate Planning Needs
A career break is also an opportune time to review your estate planning needs. Life events such as having children, taking an extended holiday, or changing your employment status can impact your estate plan. Ensuring that your estate planning documents are up to date and reflect your wishes provides peace of mind that your plan will be carried out, regardless of what happens during your break.
Taking a career break requires careful financial planning to ensure that you can enjoy your time away from work without compromising your long-term financial security. By assessing your financial situation, protecting your superannuation, building wealth before your leave, reviewing your insurance policies, and considering your estate planning needs, you can create a comprehensive plan that supports your financial well-being during and after your career break. With the right strategies in place, you can take a break from your career with confidence, knowing that your finances are secure and your future goals remain within reach.
If you’d like to have a chat to a specialist financial planner to discuss strategies for taking a career break, we’d welcome you to book a free, no-obligation consultation with one of our Private Wealth Consultants.
Disclaimer: * The information contained in this site is general and is not intended to serve as advice as your personal circumstances have not been considered. DPM Financial Services Group recommends you obtain personal advice concerning specific matters before making a decision.
