Stages of Retirement: It’s Not Just About Your Savings

A man waves goodbye to his coworkers in an office as he retires.

(Image credit: Getty Images)

By Tony Drake, CFP®, Investment Advisor Representative

published 5 November 2023

After working nine to five, five days a week for most of your life, entering retirement can be a bit of a shock. Suddenly, you go from a set schedule to days where you are free to do whatever you want. For many people who were dedicated and defined by their jobs, this transition may be difficult.

Retirement can last decades for some, and no matter where you are in preparing for your golden years, it’s never too early to start thinking about and planning for the different phases you will go through.

Planning for the future

The first phase of your retirement starts long before you get there. This is where you begin putting a plan together, but everyone’s plan will be a little different. For some, they may want to slowly move into retirement part-time, while others will want to go all in. No matter how you decide to approach retirement, having a solid plan in place will help your chances of it being a successful one.

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What do you want to do in your golden years? Do you want to travel? Or do you simply want to maintain the lifestyle you currently have? If you’re married, you and your spouse may have different retirement goals and that is OK. Having those different goals known is important because this will tell you where you need to draw money from. If you want to do a lot of travel early in retirement, it might make sense to collect Social Security right away. If you have no plans to travel and want to focus on spending time with family and friends, you can wait until your full retirement age.

Sitting down with a financial adviser and coming up with a plan for retirement can help you visualize what your retirement could look like. This allows you to truly see the purpose of your savings.

Transitioning from saving to spending

Many of our clients get nervous as they approach this stage. They have spent their entire lives earning a paycheck and putting money away for retirement, and now it's time to start drawing from those accounts. They worry about how much money they will be spending and if it will last.

Most retirees can expect to spend between 55% and 80% of what they spent during their working years, but we advise our clients to plan on spending at least 80% or more of what they were used to, especially if one of their goals is to travel extensively. It’s better to prepare for more and spend less than to be stuck spending much more than you were ready for.

There are a few phases of spending you will encounter during retirement. The first comes when you initially retire and are spending a considerable amount of time and money doing things that you have always wanted to do like traveling, golfing or going out with friends. Then you transition into a slower spending phase where you don't feel the need to do as much and can relax more.

Finally, retirees move into a phase of almost no spending. This could be when they move into a retirement home or are simply not doing as much outside of the house. While they may not be spending as much fun money, their medical costs tend to go up at this time. We have seen up to 15% of retirees' income spent on healthcare. Having a spending plan in place for your medical costs will help ensure that you are covered when that time comes.

What is my purpose?

With the nine-to-five grind now behind them, I have seen many clients struggle with what they should be doing every day. They often get through the first few months of retirement, or the retirement honeymoon phase, but after that, they struggle with their purpose. The feeling of needing to do something every day can be overwhelming.

To alleviate this concern, many of our clients pick up a part-time job to get them out of the house and give them a sense of belonging and social interaction. Others have picked up a new hobby or side hustle. With either of these options, retirees can feel a sense of accomplishment and purpose again. They have somewhere to go and something to accomplish during their retirement days.

Planning for leaving a legacy

While it’s not something we want to think about, it's important to figure out where you want your assets to go after you’re gone. What do you want to leave for your family and how do you want it divided up? Do you wish to give some of it to charity? We want to make sure that all of your assets get passed on efficiently and in the way that you want. The most important step is making sure your wishes are known.

Another important consideration when leaving a legacy is being aware of the tax implications, not only for yourself but for whom you are gifting that money. If you leave an IRA to a child or a grandchild, there are rules that specify how and when they can withdraw the funds from it. Taking distributions from those accounts could affect their tax situation, possibly pushing them into a higher income tax bracket.

If you want to donate to a charity or organization that you are passionate about, find out what type of asset you can give to that charity. Most organizations can take cash and stock donations. Larger organizations may be able to take other forms of assets, like real estate or artwork.

From the first stage of retirement to the last, you need a plan to make your money last. The first step in planning is to educate yourself. A financial adviser can help you choose the right plan and the right retirement path for you.

Drake & Associates is an independent investment advisory firm registered with the U.S. Securities & Exchange Commission. This is prepared for informational purposes only. It does not address specific investment objectives, or the financial situation and the particular needs of any person who may view this report. Neither the information nor any opinion expressed it so be construed as solicitation to buy or sell a security of personalized investment, tax, or legal advice. The information cited is believed to be from reliable sources, Drake & Associates assumes no obligation to update this information, or to advise on further development relating to it. Past performance is not indicative of future results.

Disclaimer

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

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.