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Plan for the 3 Stages of Retirement

Jun 14, 2017 | 5 min read | by Susan Johnston Taylor

Key Takeaways

  • Consider kicking off retirement by kicking up your activities.
  • Downsizing may be the way to find balance in the middle years.
  • The home stretch could mean high health-care costs.


The face of retirement is changing, so you might not desire the leisurely rounds of golf and bingo previous generations enjoyed. Perhaps your ideal retirement involves traveling the world, volunteering for causes you care about, starting an encore career or spending more time with family. 


Whatever you plan to do after leaving the workforce, your spending during retirement may be more like a roller coaster than a straight line. Often, there’s high spending at the beginning of retirement, lower spending in the middle and higher spending again later in life. 

You may have heard of the 4% withdrawal rule, which dictates that you withdraw no more than 4% of funds from your retirement account each year to help avoid running out of money. However, that oft-cited model doesn’t consider the fact that your expenses will likely change as you progress through retirement. 

Here’s a look at how to prepare now for each of your retirement stages. 


The retirement-era kickoff 

In the early stages of retirement, while you’re still active and mobile, you may want to travel more or pursue hobbies such as scuba diving, ballroom dancing or learning a musical instrument. Once you retire, you won’t have work-related expenses such as dry cleaning business suits or commuting to work, but these hobbies and travel goals have a price tag attached to them, too. Before you retire, think about how you plan to spend your time, and budget accordingly. 

A growing number of older Americans also work past traditional retirement age, some by financial necessity and some because they want to stay active and engaged. In fact, according to 2010 data from the U.S. Census Bureau, 16% of the population over age 65 was in the labor force (within the 65- to 69-year-old age bracket, 31% were still working). 

But rather than working 40-plus hours per week in a stressful corporate job, some of these older workers transition to part-time jobs or less-demanding consulting roles. Continuing to generate even a small amount of income could help pad retirement accounts for your later years and allow you to postpone claiming Social Security benefits, which could mean a larger monthly benefit in the future. 

In addition to delaying Social Security benefits if you can, you may want to stay invested in a diversified portfolio and let your retirement accounts maintain their potential to continue to grow, as you may need to fund expenses for three more decades. 


At the midway point

As you enter your 70s and the novelty of retirement wears off, you may be spending less money on travel and other activities. 

Reducing your spending in those areas could help you balance out what you spent earlier in retirement and what you’ll likely need for health care later on. You might also consider downsizing to less-expensive housing, or you may rent while you decide where to live next. 

Under current rules, if you wait until age 70 to start claiming Social Security, you’ll maximize your benefits. Once you hit age 70½, required minimum distributions from your IRA or other retirement accounts take effect. Required minimum distributions are calculated by the IRS based on life expectancy and are included in your taxable income for that year. However, you can withdraw more than the minimum if desired.  Roth IRAs do not require withdrawals until after the owner of the account passes away. 

Read more: Innovative Strategies to Help Maximize Social Security Benefits – Updated 2017 Edition


Nearing the finish line

The later years of retirement often mean higher spending on health care and, potentially, nursing home or in-home care, or assisted living facilities. One way to prepare for costs not covered by Medicare is to purchase a long-term care insurance policy, typically while you’re in your 50s or 60s. These policies typically cover services such as assistance in bathing, dressing or eating (up to a pre-selected dollar amount). 

As for health care costs, a 2015 report by HealthView Services estimates that a 65-year-old couple retiring in 2025 will have total lifetime health care costs of $463,849. 

This includes premiums for Medicare Parts B (which covers costs such as ambulance services and mental health), D (which covers prescription drugs) and a supplemental insurance policy, as well as co-payments and out-of-pocket costs. Remember, however, that this amount will be spent over several decades, not in one lump sum. But looking at these numbers makes it clear why it’s smart to plan ahead. 


What you can do next

When it comes to the cost of retirement living, be prepared to spend more early on, less in the middle and more again later. This and various financial factors mean you should take the traditional annual "4% drawn-down" rule for tapping your savings for what it's worth: a general guideline that may (or may not) work for you.


Susan Johnston Taylor writes about small business, entrepreneurship and personal finance. Her articles have appeared in The Atlantic, The Boston Globe, Entrepreneur, Fast Company and the money section of U.S. News & World Report online.



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