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Clients can apply for salary deferral plans or arrangements through their workplaces, which allows people to save up for an impending leave of absence by deferring their salary for a specific amount of time to be used when they take their Images/iStockphoto

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Extended periods of paid leave from work, often referred to as a sabbatical, were generally reserved for people in academic or research positions, but since the pandemic, more of Christian White’s clients are looking for a leave from their jobs.

Mr. White, financial advisor and associate portfolio manager at RGF Integrated Wealth Management Ltd. in Vancouver, says clients in technology jobs, legal firms or C-suite positions want to take longer leaves from their positions, treating it like “a retirement test” – and they’re getting younger all the time.

“The whole idea of fully retiring someday, stopping working – never to return again, especially when you’re dealing with more affluent families, those days are done,” Mr. White says.

“Most people now want to take extended vacations, look at sabbaticals, only work on certain types of projects, but still remain in their role.”

Indeed, this uptick in sabbaticals is having a positive impact on the world’s workforce as professionals who took a sabbatical “largely experienced significant, positive changes in their work and life” and staved off burnout, according to a recent study from The Sabbatical Project in the U.S.

But while there are some employers that will provide compensation throughout a sabbatical, it’s more likely clients will have to foot the bill themselves and, therefore, work it into their financial plans.

One of the first things Mr. White discusses with clients interested in a sabbatical is the need for an emergency fund that will cover at least three to six months of salary “because these expenses don’t go on leave just because you do.

“I also tell them to ensure they have access to a home equity line of credit or a line of credit just in case they encounter an unexpected expense that’s going to burn through their emergency reserve really quickly,” he says, adding that includes considering any loans or mortgages that might be coming up for renewal throughout the sabbatical period.

In his experience, clients also spend a lot more than they expect to. “They take a trip and then come home and want to do it again,” he says.

Possibilities and goal stacking

And while people are used to the idea of retirement with conversations coming up regularly in meetings, a sabbatical may be a new concept for many. But, they also require a lot of planning, so it’s important to explore these conversations with clients early on, says Blair Lukan, financial advisor at Edward Jones in Saskatoon.

“Often, when I ask about the plans for the future, I changed my language a little bit recently,” he says. “Instead of asking about goals, I’m asking what are the possibilities coming up in the next year, five years, 10 years, and that type of thing.”

That “possibilities” question has led to more clients opening up, he says, and a lot more people will say, “I’d love to take a little bit of time away from work, not necessarily retire.”

Mr. Lukan also says he treats sabbatical conversations as a time to have what he calls “goal stacking” chats, meaning clients may mention wanting to travel or purchase a vacation property on top of taking time off to enjoy both of these events.

“Other considerations I speak to clients about is setting up conversations with any of the key stakeholders, meaning family and employers, and anybody else that will be impacted by the decision to take a sabbatical,” he adds.

Deferring salary and taxes

There are some tax considerations to keep in mind for this time, says Travis Forman, portfolio manager with Strategic Private Wealth Counsel at Harbourfront Wealth Management Inc. in Vancouver.

“For academic staff members who choose to take sabbatical leave, it doesn’t matter whether they actually stay in Canada or emigrate temporarily to a foreign country for the duration of their sabbatical, they will be taxed by the Canadian government,” he says.

But others can apply for salary deferral plans or arrangements through their workplaces, which allows people to save up for an impending leave of absence by deferring their salary for a specific amount of time to be used when they take their leave.

Once the client has applied and been accepted, the amount deferred is usually up to the employee and can range between 16 per cent to 33 per cent. For example, an employee may choose to finance a one-year sabbatical by deferring around 33 per cent of their salary for three consecutive years or deferring 16 per cent over six years.

“If set up properly, you won’t be taxed on the amount you set aside until you receive it during your leave,” Mr. Forman says.

For him, the biggest mistake clients can make is, “overspending or dipping into funds from other investments or accounts because they didn’t plan ahead.”

Drawing parallels to retirement planning

At the end of the day, a successful sabbatical comes down to the planning, but this can go beyond the numbers, Mr. White notes.

“Some of the most successful retirements I’ve seen are actually not my wealthiest clients,” he says. “They’re the ones who treat their entrance into retirement like it’s their last and final project.”

For this reason, Mr. White says he spends as much time talking to clients about what they will do with their time during a sabbatical as he does on the financial planning side.

“As financial advisors, we’re all trained formally in all the math and science behind it,” he says.

“But we can have a really significant impact just taking all of the knowledge about retirements that have been successful or maybe even unsuccessful and showing clients what a successful practice retirement looks like.”

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