Three Phases of Retirement

Three Phases of Retirement

three phases of retirement

We tend to think of retirement as one continuous lifetime event. After forty or so years of working, we have a retirement party, then off into the “golden years” we go. But while the retirement we choose will be as unique as each of us, once we’re retired we can expect go through three phases of retirement. Understanding these different phases can help with planning.

1st Stage – Into Retirement: One thing that may not be obvious is that our income needs won’t be the same throughout our retirement. Different stages come with different expenses, which in turn depends on where we decide to live, how we choose to spend our time, and our health. If we understand these factors and evaluate how they will change, we can budget accordingly.

The busiest and most expensive phase usually occurs when we first retire. This is the time we tend to be physically capable of living a fairly active lifestyle, and there is lots of time to indulge in the things we may have put off such as hobbies and travel. You will need to plan on spending more in the early retirement years while healthy and mobile and trying all those new things in your new free time. Just don’t be tempted to go on a spending spree at this early stage, as you could quickly blow through your savings if you view starting retirement like winning the lottery. It’s best to learn to balance expensive activities with inexpensive or free ones.

This phase may include self-employment or part-time work. Those who are no longer tied down may want to move to somewhere more desirable to live.

2nd Stage – Slowing down: Many between 70 to 85 will slow down as they transition into a steadier pattern and established routine, and spending tends to drop with it. Some may want to stay home more, and travel may become more focused on visits to family which is likely less expensive. Plus many will downsize to a home with no stairs, yard work or snow to shovel!

Budgeting becomes easier because most expenses are stable and predictable, but unexpected or sudden health issues or major repair bills need to be planned for. It would be prudent to periodically review spending plans to ensure that all costs are captured including taxes and the effects of inflation.

3rd Stage – Winding down: In this phase, seniors usually slow down their activities due to declining health or finances. This third phase of retirement can be costly due to increases in health care spending, but this may be offset by decreases in discretionary lifestyle spending, as we may no longer be travelling, golfing, or even driving.

We have a great health care system in Canada, but we need to understand that in the closing decade of our lives there will likely be personal out-of-pocket medical costs not covered by Alberta Health Care. As a result one will need to research all health care options and choices, especially what would happen if one were to become chronically or acutely ill. This stage of our retirement often requires some level of support from our families or government agencies and decisions need to be made about long term care or a move to an assisted living facility. Long term care insurance coverage may be a fit and should be reviewed with a trusted financial professional, for protection against both the unexpected and potentially high costs that could be involved.


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