The 3 Phases of Retirement and How to Plan for Them

By Wendy Connick, Aug 16, 2017, Motleyfool.com

When workers think about what retirement will be like, they often imagine it as a single monolithic event — as if they can pursue their favorite activities every day until their last. But in reality, retirement is a three-stage event, and for most retirees, each stage is considerably different. Knowing how your expenses will likely change over time will help ensure that your money lasts as long as you do.

The first decade: retired life begins

During the first decade or so, new retirees are stretching their wings and learning just what this retirement thing is really like. Because new retirees are relatively young, they’re often in good health and have a relatively high energy level, so they’re ready and eager to embark on adventures like world travel. However, our natural desire to live it up after decades of work means that this first decade is typically an expensive one for retirees. That’s why it’s important for retirees to build significant flexibility into their initial budget, perhaps planning to spend 10% to 20% more per year during the first 10 or so years of retirement. For example, if you think you’ll need $50,000 in annual income in retirement, aim instead for $55,000 or $60,000 per year. With this approach, if it turns out you were optimistic about your income needs, you’ll still have enough to get by.

Part of the challenge of this early retirement period is that while you need a relatively large income, you also want to keep your retirement account withdrawals fairly low. After all, the money in those accounts needs to last you for the next 20 to 30 years; if you deplete them too much early on, you’ll be sure to run out of money down the road. Assuming your investments earn average returns (say, 7% per year if you’re invested mostly in stocks), it’s best to limit your withdrawals to 3% to 3-1/2% of the entire balance per year for the first five to 10 years of retirement. If your returns are particularly good during the year, you can take a little more. On the other hand, if your returns are bad or even negative, keep your withdrawals as small as you can possibly manage.

The second decade: settling in

Once the first decade of retirement has passed, you’ve had time to get used to this whole retirement thing and have likely sated your taste for adventure. You may also begin to experience some chronic health issues that reduce your energy or even your mobility. Thus retirees in their second decade tend to live more quietly. This is a time when many retirees choose to focus on family activities. Some feel like their current home is “more house than they need,” inspiring them to downsize and perhaps to move closer to family or friends.

Spending typically drops during this phase of retirement. Americans aged 75 and older spend 23% less on average than those aged 65 to 74, according to a Bureau of Labor Statistics study. That’s partly because elderly Americans travel less — the BLS says the 75-and-up crowd spends 35% less on transportation than the 65-to-74 group — and downsizing your living situation also helps to cut expenses. At this point, you can also bump your retirement account withdrawals, raising the percentage to 4% to 5% per year depending on your returns. On the other hand, medical expenses are likely to be somewhat higher than they were during the first decade. If your healthcare expenses are much higher than they were in the previous decade, consider switching to a different Medicare plan – a plan with higher premiums but better coverage might end up saving you money at this point.

The third decade: winding down

By this time you’re in your 80s or 90s and probably have much less energy than you did at the beginning of retirement. Many retirees at this stage move to assisted-living facilities or require other types of long-term care. It’s best to explore different long-term care options before you actually need them so that you can find the best caretaker or facility for you. It’s also a good idea to arrange for a power of attorney with a trusted advisor or family member so that if you become unable to make decisions for yourself, someone with your best interests at heart will make them for you.

Most of your living expenses will drop still further at this point, but your medical expenses will likely rise, especially if you’re getting substantial long-term care. Unless everyone in your family lives past 100, you’re probably reaching the end of your life and can thus increase your retirement plan withdrawals to 8%, 10%, or even more depending on your returns. That said, if you want to preserve capital for your heirs, then you may choose to cut back on your withdrawals.

Planning for the three stages

Since your health and energy levels will be highest at the beginning, it’s wise to pursue your highest-activity desires during your first decade of retirement. Just keep an eye on your budget so you don’t overspend and cause problems for yourself later. During the middle and later stages of retirement, many retirees experience feelings of isolation — so this is a good time to be close to family and friends. And remember: You worked hard for decades to be able to enjoy a pleasant and comfortable retirement. This part of your life should be all about you, so put your time and energy into enjoying yourself!

To Your Successful Retirement!

Michael Ginsberg, JD, CFP® 


9 Ways to Maximize Your Retirement

By Dave Hughes, August 17, 2017, US News and World Report

When you retire, a wide array of new possibilities become available to you. You have the opportunity to create a life that’s determined by your interests, desires and priorities, unencumbered by the constraint of having to earn a living. Yet many people don’t take advantage of the possibilities that retirement offers. They just continue with their daily routine, minus the job. Here are nine suggestions for how to get the most out of your retirement years. Most of them cost little or no money, but they may require some effort, new habits and a positive attitude adjustment.

Be open to adventure. Most of us are creatures of habit and routine. If you don’t add some new things to your life when you stop working, then everything that’s part of your current routine will just expand to fill the time vacated by work, probably supplemented by more time spent watching TV. After you leave work, try some new things. Be open to new adventures. Don’t say yes to things you don’t want to do, but don’t say no due to fear of leaving your comfort zone.

Create a new identity. When you are working you have a job identity, such as doctor, engineer, teacher, accountant or manager. When you meet someone new and they ask what you do, you have a ready answer. After you retire, what will you say? Saying you are a retired doctor or a former teacher lets the other person know what you did, but not what you’re doing now. Simply saying you are retired doesn’t tell your new acquaintance much about you either. Being retired shouldn’t mean there’s nothing interesting about you.

So create a new identity for yourself. If you are working on your memoir or writing the great American novel, you’re an author. If you plan to travel a lot, you’re an explorer. If you have dusted off your trumpet and you’re playing in a community band, you’re a musician. Create a role for yourself that is descriptive, inspiring and opens the door for further conversation. You may have several roles.

Set some goals, and then create a schedule and a plan. You probably have some ideas about what you want to do after you retire, such as places you want to travel, hobbies or interests you want to spend time on or new things you want to learn. You may have compiled some of these goals into a bucket list. If you haven’t written them down yet, you may find doing that to be very helpful. But simply creating a list is only part of the process. Unless you create specific plans for accomplishing things on your list, then all of these goals are likely to remain things you’ll do someday – and that illusive someday may never arrive.

So look at your list and select the first few things you want to accomplish. Set a date for each of them. Write down what you’ll need to do to make each of them a reality and get started. For example, if one of your goals is to visit France, decide that you’re going to go in May of next year. Create a list of steps such as making airplane reservations, making hotel reservations, renewing your passport and gathering information on what you want to see once you get there. Do this for each of the first few items on your list, and then update your list and your plans periodically.

Make plans for upcoming birthdays, holidays and special events. While major trips and events come along only occasionally, smaller special occasions occur far more frequently. Taking advantage of them just requires a little advance planning, but that effort will result in memorable, quality time spent with those you love and a life filled with purposeful enjoyment. As an added benefit, you’ll always have something coming up to look forward to.

All you need is a wall calendar or scheduling software for your computer or phone, such as Outlook or Google Calendar. Enter each significant birthday, anniversary, holiday or other event in the tool, and then set them to recur annually and set the advance notification feature to remind you at least two weeks in advance. If you use a wall calendar, make sure you allow yourself time at the end of each year to transfer all of your important dates to next year’s calendar. You may want to use sticky notes on the prior month’s page to remind you of events coming up.

Create and nurture a network of people you enjoy. Friends come and go throughout your life. When you leave your job or move, you’ll leave many of those friends behind. It’s up to you to keep the flow of new friends coming into your life to replenish those who naturally drift away for one reason or another. Just as the curator of an art museum seeks out the best artwork to display at his or her museum, you can think of yourself as a curator of quality friends for your life. Choose people who are positive and supportive and have qualities you value. Steer clear of people who constantly complain and gossip about others. Of course, you should be civil and polite with everyone, but you are not obligated to be friends with people just because you are related to them, you work with them, they go to your church or you’ve known them for years.

Continue to learn and grow. After you leave work, you may be grateful to be relieved of the stress of making difficult decisions and the pressure to keep up with industry trends and new information. That doesn’t mean you should shut off your brain and coast for your remaining years. One of the best ways to keep your days enjoyable and purposeful is to indulge your curiosity. Learning can be fun during retirement because you can choose to learn about the topics that are most interesting to you. You don’t have to worry about studying for exams or being graded. You can read books, visit museums, take classes, seek information on the internet, engage people in discussions – the possibilities are limitless. Staying mentally stimulated is one of the best ways to keep your retirement interesting.

Spend your money – wisely, of course. You would be surprised how many people live through their whole retirement and leave most of their money unspent. Throughout your working years, you have been conditioned to save money for retirement. Often, it’s difficult to adjust your mindset so that you can allow yourself to spend some of that money you have saved. While everyone’s situation is unique, a widely accepted guideline is that you can spend 4 percent of your portfolio each year and not run out of money. Check with a financial advisor to determine how much money you can safely spend each year. You may find that you can take that vacation or buy that convertible you have wanted. Live a little.

Get rid of possessions you no longer need. Just as it’s important to adjust your mindset from saving money to spending it, it’s also helpful to adjust your mindset from accumulating possessions to getting rid of them. Maybe you have amassed a large collection of books, movies or music that is just sitting on your shelves collecting dust. Your closets may be overflowing with clothes that you haven’t worn in years. Perhaps your guest bedroom has turned into a walk-in storage facility and your garage is so full you can’t park your car in it. Regardless of whether you sell, donate, recycle or throw away all those things you’ll probably never use again, you’ll feel better once they are gone. You will have fewer things to clean and keep organized. If you move, you will have fewer things to pack. Most people who declutter and tidy their home are glad they did it. People rarely miss those old possessions after they get rid of them.

Enjoy each day. Despite your best intentions and plans, you may not get to do everything you hope to do during your retirement. You may experience a physical setback that eliminates some things from your bucket list. You may realize that there are a few things you won’t be able to afford. Or, sadly, you may pass away before you get to everything. While it’s wonderful to have goals and plans for the future, the most important determinant of whether you will have a happy retirement is whether you enjoy each day as it comes along. As you are getting ready for bed each night, think back on your day. Did you enjoy it? If not, why not? Figure out what you can add or eliminate from your life so that you will enjoy each day a little more. Sometimes an average day can turn into a great day with a little spontaneity. If it’s a nice afternoon, find something to do outside. On a whim, call a friend and ask if they would like to have lunch or dinner with you. If the day seems too routine, do something out of the ordinary. When you’re retired, you have more freedom to do what you want with each day. Avail yourself of that freedom. Time spent doing something you enjoy is time very well spent.

To Your Successful Retirement!

Michael Ginsberg, JD, CFP®