For many pre-retirees their retirement plan consists of one major question. Do I have enough to retire and not worry about running out of money? It is an important question to answer and have a detailed discussion with your financial advisor about. But there is a lot more that should be planned for and discussed surrounding what your retirement years will look like.
We always talk with clients about the 3 different phases of retirement and how each phase has its own planning and expenses to be considered. The 3 phases tend to look like a barbell when we discuss expenses involved, higher in the first phase then expenses come down as life slows down a bit in phase 2 and again expenses rise in phase 3 as health care expenses rise later in life.
Phase 1: Honeymoon Phase of Retirement
In Phase 1, you and your spouse are newly retired and are most likely filling your days with activities you have always dreamed about. Maybe it’s finally taking that European vacation or driving cross country exploring the National Parks. These are once in a lifetime type trips that have been on your to-do list. Because many newly retired individuals are incurring these expenses, spending tends to be a bit higher than “normal” during this phase. But you will most likely not take these trips every year in your retirement, or maybe you will! These larger expenses should be a part of your financial plan to determine just how much you can spend while not damaging your nest egg permanently.
Phase 2: It’s All About Family
During phase 2 of retirement many individuals have started to slow down, the draw to be on an airplane for 8 plus hours to get to Europe just isn’t there and they would prefer to spend their time around family and friends locally. As life slows down a bit the entrance of grandkids and the desire to spend more time at birthday parties, graduations, and sporting events means more than some of the more expensive retirement activities. Because of this, expenses tend to come down during this phase.
Phase 3: Staying Healthy
Phase 3 of retirement sees expenses tick back up due to the inevitable breakdown of our bodies. During this phase a larger portion of your expenses will be used for medical expenses. It is also important in this stage of retirement to discuss your “plan B” for if you can’t stay in your house due to mobility issues. Plan B is finding a suitable community that you would feel comfortable in should you or your spouse not be able to safely stay in your own home. It is always better to be prepared and have a few options that you like than having to make a large decision like this at a moments notice.
All in all, it’s important to have these discussions with your trusted advisor as well as family so everyone can be on the same page. Planning for a few decades of your life is not an easy task and shouldn’t just be a one-off discussion. It’s important to periodically review your plan as most goals and priorities will change over time.
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