The 4 Phases of Retirement
Retirement means more than no longer working 9 to 5. There are four phases of retirement, and you should be prepared for each one.
What comes to your mind when you hear the word “retirement”? Do you think of traveling the world or hosting a family game night with the grandkids? Are you picturing dinners at deluxe restaurants or around the kitchen table?
Retirement can span decades, and it changes as you age. Everyone’s retirement will look different, but most people have four distinct phases of retirement. Understanding and properly planning for these stages is key to accomplishing a dream retirement.
To continue reading this article
please register for free
This is different from signing in to your print subscription
Why am I seeing this? Find out more here
Phase 1: Pre-retirement
The first phase of retirement actually starts about a decade before you stop working. While you should start saving for retirement on the first day of your first job, you’ll mostly be setting aside money and letting it grow. Once you are in your 50s, you enter the pre-retirement phase and should start actively planning for your retirement.
Start with your goals and determine what you want your golden years to look like. Talk it over with your spouse, if you’re married. By having an end goal in mind, you’ll have a better idea of how much you need to save in your nest egg. It sounds simple, but many people miss this step. In fact, a recent survey shows more than one-third of Americans say they have “no idea” how much they need to save for retirement.
Saving is important, but it isn’t enough to get you out of the pre-retirement phase. You need a plan that includes income strategies for when you enter retirement. Since you’ll no longer be receiving a paycheck, you’ll need to replace your income in other ways, such as investments, Social Security, pensions or annuities. It can be overwhelming to manage your finances on your own, especially when you are approaching retirement. Working with a financial adviser who understands the transition to retirement can put your mind at ease.
Phase 2: The Early Years
Expenses are typically the highest in the early years of retirement, because your mind and body are feeling good. There’s excitement about trying new things and plenty of free time without a full-time job. Travel, entertainment and hobbies can eat up a big portion of your savings, so you’ll need to create a plan to make sure spending doesn’t get out of control.
The early years of retirement are a great time to consider a part-time job. Many people find it jarring to transition overnight from working full-time to not at all, and they enjoy doing something meaningful to pass the time. Financially, a part-time job can provide enough income that you may be able to delay claiming Social Security benefits or tapping into your retirement savings.
This is also the time to consider your living arrangements. About 40% of retirees move after they stop working. Some empty nesters downsize to a smaller home. Many retirees choose to move for other reasons, including being closer to family or enjoying a warmer climate.
Phase 3: Middle Retirement
Middle retirement is often the least expensive phase. About 10 years into retirement, spending settles down as retirees travel less and stay home more. However, health care expenses start to rise during this time as you start needing more medical appointments. You may also face additional medical expenses, including equipment and updates to your home to make it more accessible.
Estate planning is also an important step in the middle years of retirement. If you created a will when your children were younger, you’ll want to revisit it to make sure it still reflects your wishes. It’s likely that your family dynamics have changed, with births, deaths, marriages or divorces. Once you hit middle retirement, keeping your estate plan up to date becomes more important than ever.
Phase 4: The Later Years
Health care is a major expense in the later years of retirement. According to Fidelity, the average 65-year-old couple should plan to spend $300,000 on health care throughout their retirement. The majority of those costs can occur in the later years. Consider long-term care insurance in your earlier years, which will cover expenses like nursing homes, assisted living and home care services.
Although each phase is different, at least one thing remains the same: the importance of monitoring and evaluating your finances. A financial plan cannot be created and forgotten. Retirees should assess their situation often, consult with their financial adviser and make adjustments from pre-retirement through their later years.
Tony Drake is a CERTIFIED FINANCIAL PLANNER™ and the founder and CEO of Drake & Associates in Waukesha, Wis. Tony is an Investment Adviser Representative and has helped clients prepare for retirement for more than a decade. He hosts The Retirement Ready Radio Show on WTMJ Radio each week and is featured regularly on TV stations in Milwaukee. Tony is passionate about building strong relationships with his clients so he can help them build a strong plan for their retirement.
-
Worst States for Investors With Long-Term Capital Gains
Capital Gains Tax The worst states for investors have high long-term capital gains tax rates that could eat a chunk of your earnings.
By Katelyn Washington Last updated
-
Meta Stock Slides as AI Spending Ramps Up: What To Know
Meta stock is falling after the Facebook parent increased spending on artificial intelligence and the metaverse.
By Joey Solitro Published
-
Is Your Retirement Solution Hiding in Plain Sight?
Here’s how to use your home equity in combination with an annuity contract to produce late-in-life income.
By Jerry Golden, Investment Adviser Representative Published
-
How to Choose Your Trustee or Executor of Your Will
Above all, you should choose someone you trust, keeping in mind that acting as a trustee or executor can be a complex, thankless and sometimes long-term job.
By John M. Goralka Published
-
Three Steps for Women to Take Control of Their Finances
These strategies are especially for women who are new to managing their money because of divorce or the death of a spouse.
By Emily Glassman Published
-
How AI Can Help Take the Emotion Out of Investor Decisions
AI-driven recommendations can complement human judgment, leading to more rational choices that aren’t as influenced by biases and blind spots.
By Francis Geeseok Oh Published
-
Can You 1031 Exchange into a REIT?
No, you can't, but two other REIT-like alternatives let you defer capital gains taxes while giving you exposure to institutional-quality real estate assets.
By Daniel Goodwin Published
-
Navigating the Finances of Fertility Choices and Adoption
Before embarking on the journey to parenthood, knowing what to expect financially for the different options is a good starting point.
By Julia Pham, CFP®, AIF®, CDFA® Published
-
Four Tips to Make Your Sales Presentation a Winner
Being prepared and not being boring can go a long way toward persuading a potential customer to buy into what you’re offering.
By H. Dennis Beaver, Esq. Published
-
Pros and Cons of Waiting Until 70 to Claim Social Security
Waiting until 70 to file for Social Security benefits comes with a higher check, but there could be financial consequences to consider for you and your family.
By Patrick M. Simasko, J.D. Published