January 6, 2025
I haven't been working full-time very long. About 5 years since I left college. Still, I have thought a lot about taking a year off to focus on other things (that will hopefully bring me more fulfillment). Could I afford it right now? Sure! But what impact will it have on my future? My retirement? That unknown cost as well as a healthy fear of compound interest has kept me from actually acting on the desire to quit for a year. But wait, how much exactly would it cost to take a full year off?
First, let's make some assumptions about our hypothetical year off, and the jobs that come before and after:
The amount you would take home your year off is $53,626 [3]. Subtract your expenses (half) and you get a total of $26,813.
Your year off also has expenses. Since those equal exactly half your take-home, we're back up to $53,626. Your total loss for this year is $53,626. It might have been a good idea to move somewhere cheaper for your year off or reduce spending, but we'll say you didn't for these purposes.
Right off the bat, things are not looking good. You're losing 50 grand just from one year of not working. Or, more accurately, you're spending 25 grand and not making another 25 grand.
First, we need to subtract the cumulative loss of missing that 7% salary increase. We lose out on 7% of extra income for 40 years, but the actual amount lost grows larger after each year because you will keep receiving 7% raises. We will just calculate the difference between each year for 40 years of 7% raises at a salary of 100,000 vs a salary of 107,000 [4], and we'll adjust for inflation as we go. This gives us a total direct loss of $183,152 (adjusted for inflation).
But wait, what if we invested all of that difference yearly, too? We'll assume we compound yearly, rather than monthly here. Taken in isolation, we'd get a total of $448,347.38, adjusted for inflation.
We miss out on contributing $23,500 into our 401k. We'll calculate the loss here by comparing a 401k starting at $25,911.10 (23,500 * 1.1026) in 2025 at 25 years old vs $0. We get a total difference of $1,288,858.91 [6]. Adjusted for inflation, $354,134.352, pre-tax.
We'll use the same method here that we did in calculating the loss due to not investing in 401k. Doing that, we get a total loss of $366,460.87, post-tax, adjusted for inflation.
If we add these values up, we get a total loss of (by the time we're 65), $814,808.25 post-tax and $354,134.352, pre-tax.
So, it turns out, the total cost of taking a single year off of work is like a million bucks if you currently make 100k. That's a wild number, but keep in mind I did make a number of assumptions that could definitely affect this value. I could also have math wrong'd.
Then, what's the takeaway? Never take a year off? I don't think so. You have to remember a year of your life is much more valuable when you're 25 than when you're 65. You can go explore the world completely unimpeded by health or physical concerns, you will fit in more places, you will have more energy, and so on. If you really want to take a year off, then absolutely go for it. Just make sure you can't do what you want while also working. And make sure you spend your year wisely!
[1] https://www.usinflationcalculator.com/inflation/historical-inflation-rates/
[2] https://www.investopedia.com/ask/answers/042415/what-average-annual-return-sp-500.asp
[3] https://smartasset.com/taxes/income-taxes#pWGQiPCKzl
[4] https://www.fncalculator.com/financialcalculator?type=salaryIncreaseCalculator
[5]
I made a spreadsheet with some data and calculations
[6] https://www.bankrate.com/retirement/401-k-calculator/