Phases of Retirement
It's critical to think about the long term when it comes to retirement planning. Forty years ago, retirement was expected to be short. Today, it's not uncommon for people to spend 20 years or more in retirement.
Attitudes about retirement planning haven't caught up to this new reality. Planning doesn't stop once you retire - your retirement savings and budget needs will continue to change as you age and move from one phase of retirement to another.
Consider these three phases of retirement. Learn how to plan for each phase now and you'll be more prepared for the future.
1. The honeymoon phase
You made it. After years of working hard and diligently adding to your retirement savings, it's time to start enjoying everything you've been putting off for decades. This is the part of retirement where you're still feeling spry, and the idea of a Caribbean cruise or a European vacation sounds perfect. While it's a great time to start embracing the freedom you have to travel more or take up new hobbies, you also need to keep an eye on your spending.
Remember, you've got years ahead of you. It's critical to create a retirement budget so you're not spending a disproportionate amount of your savings too soon. The key here is working your budget in a way that is going to account for a higher cost of living in those first few years, but still maximize your retirement savings over the long run.
And while you may be feeling pretty carefree during this time, you also have to be financially prepared for the unexpected.
2. The comfort phase
For many, this phase marks the second decade of retirement. At this stage, you may have a pretty good handle on retired life. You might have slowed down a bit, you don't need to travel as much and your grandchildren are teenagers or even off at college.
It's also common for some health issues to arise at this phase. During your retirement planning, you'll need to account for increased costs and doctor visits in this part of retirement. You might need to revisit your Medicare plan and consider supplemental health insurance or long-term care insurance to help defray a potential increase in medical and care costs.
You'll also want to think about your living situation. Downsizing your current home or moving into a senior living community are common options. You can run these scenarios through your budget and see how it impacts your retirement budget. At this stage, it's also a good idea to start thinking about assisted living or long-term care facilities so you can explore the best options before you need them.
3. The wind-down phase
The final stage of retirement is often the most predictable. In most cases, over 20 years into retirement means you'll be into your late 80s or even 90s. That usually involves less mobility and potentially another change in your living situation: at this stage, many retirees are in assisted living or long-term care facilities.
As you approach the end of your retirement, you can also think about your legacy. Estate planning is something that you can start long before retirement by making sure you have a will. As you enter retirement, think about naming a power of attorney and updating any final medical requests you might have in the event that you're unable to make those decisions yourself. The retirement savings you have set aside at this point will typically get earmarked for healthcare and living costs. Whatever you want to preserve for the future, can be designated in your will for your heirs to enjoy.
Even if your retirement seems far away, it's never too early to begin planning. Understanding what your budget might be and how to best maximize your retirement savings can help increase the chances that you'll be able to enjoy your golden years - just as you planned.
Read more about setting smart and realistic retirement goals.