Micro-Retirement: A Strategic Pause or an Excuse to Evade the Grind?

You say toh-may-toh, I say to-mah-toh. Who has it wrong and who has it right? The latest addition to Generation Z's evolving lexicon is "micro-retirement". The concept of micro-retirement is to take time from work while you are still young, rather than the deferring all your future leisure plans to the later years of life. Some may call it leisure, they call it life design. Skeptics, however, might dismiss it as nothing more than glorified unemployment. As this phenomenon gains traction, you have to wonder: is Gen Z pioneering an enlightened approach to work-life balance, or are they unwittingly sabotaging their financial futures?

Meet Brittney: The New-Age Career Nomad

Ok, I must make a confession. At 55, I find it difficult to grasp the notion of needing a big 'break from work' in your 20's. Enter Brittney Foley, 26, is another woman who is opting for a micro-retirement. She explained that taking smaller career breaks earlier in your life is perfect when you don't have kids as you can quite literally do whatever you want. This is assuming you can afford it. Although, with credit card debt at a staggering $1.2 trillion dollars and the average credit card balance soaring past $6,000, can Generation Z really afford it?

Brittney said, "With other people my age, there's so much pressure to chase promotion cycles and raises, and everyone is so burnt out." Burnt out? At 26?

This generation has decided to flip the script of how they view their own financial plan, which is live for today and don't worry about tomorrow. There is a much more cynical view from people in their 20's that they will be able to afford a home, retire comfortably, and reap the benefits of Social Security. So, we are witnessing a counterculture of younger people turning the retirement script upside down with this idea of having 3 to 6 month breaks in between their next career move.

Recently, the daughter of a very close friend of mine left Google at the age of 30. She had done very well there, rising through the ranks and earning nearly $300,000 annually. But, feeling the passion to live for today, she quit the job and is embarking on a four month sojourn in Hawaii, followed by two months in Bali - all before she figures out her next career move. Is this something that boomers and gen x'ers should have done when they were younger?

The Financial Consequences

The concept of micro-retirement isn't novel. It was first described in The 4-Hour Workweek, a self-help and careers guidance book published by the entrepreneur, Tim Ferris, in 2007. However, most young people may not fully think about the financial consequences of these mini-retirement decisions.

• Your 401k/Retirement Savings: For generation z workers, they need to look closely at the matching and profit-sharing contributions from their company. Often these contributions made by the employer have a vesting schedule and it could be a horrific financial move to walk away from unvested money that could have a substantial impact on your retirement balances over the long haul.
• Your Ability to Earn the Same Income… or More: The strategy of micro-retirement assumes that you'll be able to re-enter the workplace quickly and at the same income or more. Part of growing your income, bonuses, and potentially company stock is often tied to your tenure with a company. It's unknown yet how employers will view someone that has two, three, or four breaks in their resume to micro-retire and whether they will want to hire that person knowing they could quit in a couple of years after they have invested tons of time and money training that new employee.
• Your Social Security: While some generation z workers believe they will never see a dime of Social Security, it's important to account for how a break in your income will affect your long-term Social Security. It's likely the full retirement age for those in their 20's will be past the age of 67, but having gaps of income could make your overall Social Security lower down the road and impact your overall retirement.
• Mounting Debt: What's most worrisome about this new trend is the debt that younger workers in America may take on to achieve a mini retirement. Most people in retirement aren't jet setting around the world and often these micro-retirement breaks are partnered with exotic vacations or luxury travel which could increase the debt load on younger people.

Is This Resilience or Recklessness?

The micro-retirement movement has found a home on TikTok, where Gen Z professionals openly share their commitment to prioritizing mental well-being through periodic career pauses - despite being decades away from conventional retirement age.

To be fair, the desire for early-life enjoyment isn't entirely unfounded. On one hand, I've done financial plans for many people in their 40's and 50's who are seeking an early retirement to start to 'enjoy' their hard-earned money and savings. However, many of those people often worry about running out of money so they'll extend the amount of time they work another five or ten years to be sure they have enough retirement savings to do whatever they want to do in retirement. In some cases, health issues that arise like a bad knee or hip or something even more consequential may stop them from fully enjoying the assets that they have saved up.

On the flip side, there's an undeniable risk in disregarding future financial preparedness. You are not only applying a much narrower window of achieving retirement success by deploying this strategy, but it could also cost America billions of dollars to take care of people who didn't save because they wanted to spend their money today. If micro-retirement becomes the norm, are taxpayers expected to foot the bill for those who neglected to plan for their later years, just as they did with student loan bailouts?

So, who has is right? The traditionalists who diligently contribute to their 401(k)s, accelerate mortgage payments, and defer gratification in anticipation of a more secure future? Or, does Gen Z have it right with the attitude that tomorrow is never promised, who knows when we will have a COVID like event again, so you should just sit back, assume you'll work forever, and soak up as much fun as you can when you are in your 20's and 30's? Only time will reveal whether this is a fleeting fad or a paradigm shift that redefines how we approach work and retirement in the modern era.