The following is adapted from the book, Keen on Retirement – Engineering the Second Half of Your Life.
At Keen Wealth, we stress planning for retirement as far in advance as possible so that our clients will be ahead of the game. We encourage clients to create a retirement blueprint with measurable milestones and specific achievable goals. And we help them implement personalized strategies for disciplined wealth-building over time.
However, no one’s retirement is a straight line. Your interests will change. Your health will change. Your personal relationships will change. And, perhaps most importantly from a financial planning perspective, your annual spending rate will change.
Most people can divide their golden years into three distinct periods, each with its own unique needs that your financial plan should be prepared to accommodate:
The Go-Go Years
During the first 10 years of retirement, most people tend to be more active because they’re younger and in better health. Spending is typically high during this segment of retirement because retirees are busy traveling and enjoying hobbies they didn’t have time to pursue when they were still working.
Therefore, when planning your retirement spending, it may be wise to allocate extra funds if you think you’re likely to be the classic Go-Go senior during this time. Your fixed expenses will probably be the same as during the next period, but you will want money for vacations, sports, club memberships, and the like.
Remember: you deserve to have that money allocated for fun! Don’t be so stuck in a conservative mindset that you miss out on enjoying your Go-Go years. Luxury items, travel, and recreation are less likely to be a burden on your budget if you plan for them in advance and have the funds to realize your dreams.
The Slow-Go Years
During this middle period of retirement, people typically start to spend less money. They may not be so keen on travel, which can be wearing, nor may they feel like pursuing activities that require a high degree of energy. Retirees in the Slow-Go phase often trade in windsurfing and tango lessons for modest social activities and home fun.
This physical slowdown results in a financial slowdown as well for most seniors. If you’re not traveling as much and staying in for dinner, naturally you’ll spend less money.
Just don’t become too much of a homebody while you’re still able to get around. Think about ways that you can substitute activities that are getting a bit too difficult with new activities that will still keep you engaged with people around you. Culinary tours of Europe might become Friday nights downtown at new restaurants. Golf and tennis might become bridge and bingo.
The No-Go Years
Today’s retirees are living longer and more active retirements than any before. The final phase of your retirement is going to depend on your level of health as you age.
Your No-Go period might be five years, or it might be 20. You’ll see another slowdown in activity during this period, usually with a reduction in social activities and the ability to get around. Your No-Go spending will have to adjust to your ability to live independently. Some seniors can age in place in their own homes, while others may need to transition to an assisted living facility or nursing home. Healthcare expenses can be critical at this stage. Generally, we tell our clients to plan for an increase in medical and pharmaceutical payouts. With national healthcare costs rising at twice the rate of inflation, it’s better to over-budget for long-term care than to be caught short. Most people find it beneficial to take out a supplemental health insurance policy at this stage as well to bolster their Medicare.
When planning for your retirement, take a look at your health, your spouse’s health, your expenses, your income sources, and your desire for your free time. Allocate funds according to these factors, taking into account the three retirement phases, to better prepare yourself for when you leave the workforce. The more prepared you are, the more retirement can be free of stress and full of the things you always wanted to do.
For more advice on planning for the different phases of your retirement, you can find my book Keen on Retirement – Engineering the Second Half of Your Life on Amazon.
Bill Keen is a CHARTERED RETIREMENT PLANNING COUNSELOR℠ and independent financial advisor with more than 25 years of industry experience. As the founder and CEO of Keen Wealth Advisors, a registered investment advisory firm, he specializes in providing personalized retirement planning designed to help people thrive before and during their retirement years. With a passion for educating others, Bill regularly blogs about retirement planning, hosts the podcast Keen on Retirement, and has contributed to U.S. News and World Report, Reuters, Wall Street Journal’s Market Watch, Yahoo Finance, and other publications. Based in Overland Park, Kansas, Bill and his team work with clients throughout the greater Kansas City area and across the nation. To learn more, connect with him on LinkedIn or visit www.keenwealthadvisors.com.
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