The 3 Stages of Retirement

by | Sep 20, 2022 | Blog

One of the most common misconceptions about retirement is that it is a single continuous event. You tell your boss, or whoever you need to, that you do not plan on working anymore and you’re off into this new stage of life called retirement.

Maybe there is a little celebration, a gold watch, or just a big sigh of relief.

It’s funny, though. Because when you try to define retirement, what you end up with is:

Retirement = Your life as it already exists – work

It’s difficult to throw a blanket over it because retirement means a lot of different things. It includes the mindset shift from saving to spending, the increased freedom, trying to find a new purpose, the loss of routine and so much more.

One of the things that will stay the same, however, is that life will continue to change during retirement as it did during your working years.

Although retirement is unique to each person, it generally passes through three stages or phases namely; active stage, slow down stage, and inactive stage.

Understanding the different stages of retirement and taking away the assumption that your needs are the same throughout, can help you plan for your future years effectively. It is important to know that each stage has its own expenses, and those expenses greatly depend on your activities, lifestyle and health.

The retirement spending research indicates that spending generally resembles a smile. It’s high at the beginning, takes a curved dip in the middle and increases again at the end. We’ll take a look at the reasons for that phenomenon as we break down each stage of retirement.

Active Stage

This stage occurs in the early years of retirement, usually between the ages of 60 and 75. At this stage, a retiree is still trying to figure out what to do with their newly found free time while enjoying the fruits of employment. Between this age bracket, retirees are still active health-wise and often find themselves looking forward to taking vacations and enjoying what life has to offer. As a result, the cost of living increases and more money is spent during these earlier years of retirement.

To have control in this stage of retirement, it is always a good idea to let your money continue to grow. We hate seeing new retirees completely de-risk their portfolio. That is not a recipe for success in our experience.

Considering that this stage of retirement is quite exciting and full of adventure, it’s important that you have the cash flow to sustain your budget. Plan accordingly before you retire and list the things you would like to try at this stage even before retiring.

Slow Down Stage

The slow down stage typically occurs between the ages of 75 and 85. In this stage, the retirement hype experienced in the first stage starts to fade away and you are more into taking-it-easy. Here you may find yourself spending most of your time visiting family and friends, and you may also start considering downsizing into a smaller home or moving closer to your grandkids and other family members.

Cash flow is equally important in this stage as it was in the active retirement stage. As you balance the costs, you also have to figure out how you want to leave things. And pay for potentially increasing medical expenses.

Inactive Stage

This last stage occurs from the age of 85 and onwards. Here, your life will change in many different ways. At this stage maybe your energy levels are lower, and you may have to call on your family for more help moving around or carrying out various personal activities. During this stage, you may see a reduction in your cost of living because you will not be moving around as often as the previous stages. However, on the other hand your healthcare costs may rise significantly.

During your earlier years of retirement, you need to plan for this stage well. It’s important to have a plan in place about how you will want to be cared for in case your health makes you dependent on others. Inform your family about your savings and delegate authority to someone who can make important financial decisions for you in case your cognitive abilities begin to decline. In this stage, deeply focus on yourself and your general well-being in the final years of life.

Not everyone’s life will go according to this pattern. And adjustments will need to be made along the way. But it can help to understand that there too will be ebbs and flows of retired life as there are during the rest of life. If you need help figuring out your own personalized retirement plan, get in touch with us, we’d be happy to help!