The three phases of retirement


It’s no secret that people are living longer than ever before. That means a retirement that once lasted just a few years, could now last 20 years or more. Your savings and income must also last that long, because you certainly don’t want to outlive your money. But the experiences of retirees indicate that costs and spending change significantly during a multi-decade retirement. People’s retirement costs typically are highest for the first few years after retirement, then tend to taper down later, and finally level off or possibly increase (because of increased healthcare and assisted living costs). Here’s a closer look at the three main phases of a typical retirement.

New retiree phase (age 65-75)

For a retirement that begins in a person’s early- to mid-60s, the first ten years or so are usually the most active. People are relatively young and healthy and looking to make up for lost time in travel, socializing, entertainment, volunteering, and pursuing hobbies that might have been scaled back or put on hold while working a job and raising kids. This is the phase where you have the most discretion in terms of spending.

The planning and budgeting leading up to retirement are focused largely on this phase. You should have a good idea of what types of retirement lifestyle you want, and budget accordingly. Your work-related costs such as daily commuting, work attire, and lunches out are gone, but travel and hobby-related costs may go up. This is also the phase where people begin to think about downsizing, by moving to a smaller home, or even less expensive area, to reduce costs.

Many retirees also work at part-time jobs, for the income and also for the fulfillment and social contact. Traditionally retirees have been told they should invest conservatively. But unless you’re superrich, the latest advice is to keep part of your savings in stocks, because that’s the best way to ensure your savings will grow as needed to last throughout your retirement.

Slowdown phase (age 75-85)

During this phase people’s expenses often begin to taper off as they scale back their activities. You’re still active, but typically not traveling as much as previously. The excitement and novelty of retirement have worn off. Travel now is most often to visit friends and relatives. Some retirees consider moving to be close to grown children or assisted living facilities. Many advisors recommend becoming more conservative with retirement investments during this phase, since wealth preservation is important at this stage. Additionally, healthcare costs sometimes begin to trickle up during this time.

Finishing phase (age 85 and up)

This is where most people’s retirement really begins to slow down. Your body doesn’t move like it used to, and your energy level is lower. Your health begins its inevitable decline. Although healthcare and assisted living expenses increase during this phase, other expenses lower as you’re not traveling and dining out as much. Financially, the focus is on preserving wealth for healthcare, living needs, and unexpected expenses, and also for leaving an inheritance. People start to take stock of their lives and look at their legacy.

The three phases indicate that retirement isn’t a static process, but rather an ongoing one that requires different planning and financial and lifestyle adjustments for each phase. Like retirement as a whole, success in each phase requires proper planning and budgeting that begins early and continues throughout each phase.


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