The Three Phases of Retirement

Congratulations if you’ve already reached retirement!  This can be a wonderful time in your life. But just like pre-retirement, there will be different phases in retirement. In this article, I’ll introduce you to what many people call the three phases of retirement.

Phase One.  For many of us, this is the first decade or so of retirement.  Say 65-75 to make it concrete.  It’s the time that hopefully we’re still in excellent health and we still have a lot of energy.  It’s kind of like when we were working, except now we have the time and the money to do what we want.  For lots of us, we’ll travel, do some recreational things and generally just enjoy ourselves.  This is often the sweet spot of retirement.

To support it, you’ll typically spend more than you will later in retirement.  Let’s get specific here.  A commonly used rule of thumb is that if you withdraw 3-3.5% of your investments per year in retirement, you won’t outlive your funds.  In phase one, many people increase the withdrawal rate to about 4% to pay for the extra travel and other fun things.

You may wonder how you can afford spending more in phase one.  The reason this works is because you’ll spend less on just about everything else (except for health care) as you age.  That’s right, you’ll spend less on food, housing, clothing, transportation and entertainment in phases two and three.  In fact, the Bureau of Labor Statistics found that people who are 75 or older spend 23% less than those in the 65-74 group.

Phase Two.  You might call this the middle period.  Let’s say it covers ages 75-85.  This is when many of us slow down a bit.  Health issues and decreased energy are the usual causes of this.  We’re still enjoying retirement, just in a new way.  For example, we probably travel less.  The Bureau of Labor Statistics found that people who are 75 or older spend 35% less on transportation than those in the 65-74 group.  Medical expenses will probably increase.  If they get a lot higher than the previous decade, it might be worth reviewing the various Medicare plans and getting one with better coverage.  While the premium may be higher, it might save you money overall.

Phase Three.  Some people think of this as the home stretch.  It begins around age 85.  Many of us need some help in this period.  Whether it involves assisted living or hiring some in-home care, medical costs will rise.  Hopefully you made plans earlier in your life to fund these long-term care needs.  This is also a good time to be sure your estate documents are up to date.  Don’t forget to look at your medical directives to be sure your end-of-life wishes are clear.  Many of us will want to review our remaining assets and determine how we’d like to use them.  Maybe we want to help a grandchild with college.  Maybe we want to watch our final expenses so we can maximize the legacy we leave.  The “best choice” is as individual as you are!

Whether you’re already retired or are still preparing for it, we’d be happy to sit down with you and review your situation in a no-charge, no-obligation initial meeting.  Just visit our website or give us a call at 970.419.8212 to learn more.

This article is for informational purposes only. This website does not provide tax or investment advice, nor is it an offer or solicitation of any kind to buy or sell any investment products.  Please consult your tax or investment advisor for specific advice.