:max_bytes(150000):strip_icc()/GettyImages-1353379081-d8f323fddc104f758c2583c03573618c.jpg "How I’m Talking to Clients About Planning for Career Gaps")
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Key Takeaways
- A padded cash cushion can reduce significant stress during a career gap.
- It’s okay to temporarily reduce 401(k) contributions, extra mortgage payments, and splurges.
- Model a longer pay gap than expected to allow for uncertainty and breathing room.
- Consider all liquidity options, including home equity access, before leaving employment.
- Utilize the low tax year for key tax planning strategies.
Career gaps are becoming more common among Americans. In fact, according to MyPerfectResume’s 2025 Career Gaps Report, nearly half (47%) of U.S. workers have experienced a break in their careers.
When planning a career gap, whether it’s a parental leave, sabbatical, or a career pivot, our role as advisors is incredibly important in this process. Here’s how I’m helping my clients navigate this time period so they can plan their finances accordingly.
What I’m Telling My Clients
1. Cash Is King
When planning a career gap, the most crucial step is building up cash reserves. It’s a key moment for you to understand your actual baseline spending. A healthy cash cushion can significantly reduce stress associated with the process and provide flexibility and options.
2. Break a Few Financial Planning Rules
Temporarily reduce 401(k) contributions, Employee Stock Purchase Plans (ESPP) purchases, and other excess savings into IRAs and other less-liquid assets. Building cash in taxable brokerage accounts and high-yield savings accounts is more valuable during this period. It’s also not the time to make extra mortgage payments or take on a new car lease.
3. Plan for an Extended Leave Scenario
If you are planning a six-month break, incorporate some wiggle room. Model for at least 12 months, or even up to 18 months. This buffer takes the pressure off and will provide breathing room. It also gives you more time to ramp back into a career, if that’s a part of your plan.
Tip
Consider multiple scenarios, including a longer pay gap, lower income upon reemployment, and other variables, to ensure the plan holds up under different conditions.
4. Map Out Liquidity Options
Identify where you’ll pull funds next, if needed. Prioritize cash at the bank, high-yield savings accounts, and money markets. Then, outline which investments could be liquidated next. This could mean mapping out selling investments, distributing Roth IRA basis, a spouse’s 401(k) loan, or other backup-to-the-backup plans.
A key planning move could be to take out a home equity line of credit. Although it’s not a ‘Plan A’ or even a ‘Plan B’ move, having access to home equity can provide a more solid safety net. It’s much easier to qualify for a HELOC when employed, so establishing this access before a pay gap should be prioritized, if appropriate for your situation.
5. Optimize Tax Planning
During a low-income year, consider capital gain harvesting, Roth conversions, and other tax moves that could be executed in a lower tax bracket. It may feel scary to pay additional taxes on Roth conversions, but you don’t want to waste a low tax bracket year.
The Bottom Line
A well-planned career gap can be an exciting chapter in your life. By padding cash reserves, modeling extended scenarios, and creating a liquidity roadmap, you can step into this transition with confidence.
