When good health and financial preparation come together, retirement can last for decades. However, even in shorter retirements, there are certain stages that you can expect, and each stage requires a unique approach to budgeting. Budgeting properly is essential for retirement because, without it, you could run out of funds before the end of your life. Therefore, it is important to familiarize yourself with the stages of retirement, and how to approach the budget of each.
Peri-Retirement (age 50 to 62)
Before you retire, you are in the peri-retirement stage. While you are still working, you are starting to be able to see retirement in your near future. This means you have a much better idea of what kind of savings you have, as well as what your expenses will be in retirement. You can finally start to figure out what exactly you want to do with your upcoming abundance of free time. What has been hypothetical since you started working in your youth is now quickly becoming a reality.
During the peri-retirement phase, it is important to assess what your income and expenses will be at retirement age. Find out what you will receive from your pension or from Social Security. Look at the balance of any of your retirement savings accounts, such as IRAs or 401ks, and determine how much you will be able to withdraw each month. Consider your mortgage; will it be paid off by then? If you will have to continue making mortgage payments, determine for how long and for how much.
At this point, you will assess whether or not you will be able to retire early. Sometimes, an early retirement buyout is offered to you or you may be forced to accept an offer. This is also a very good time to write a succession plan for your business. If you are a financial advisor and need help with RIA succession planning, contact us at advisorRETIRE™. We have extensive experience helping financial advisors implement and execute succession plans for the benefit of themselves, their families, and their clients.
This is also a good time to start evaluating your budget and cut back on any wasteful spending to prepare for your retirement. You still may have major expenses to deal with in retirement; for example, if you are still putting your children through college or if you plan on buying a new home. Therefore, having your budget in order now will help your retirement budget go farther.
Early Retirement (ages 62 to 70)
When you first retire, this is when your budget will change the most. Without having a steady paycheck (unless you have a pension), you will need to manage your own income. You will also have to decide when you want to begin collecting your Social Security benefits. Additionally, if you were on an employer health insurance, you will have to find your own health plan, and consider the needs of your spouse and dependents as well. If you are old enough to qualify, you will want to sign up for Medicare.
Additionally, if you do not have long-term care insurance, it is a good idea to invest now. Though it can be expensive, it can also save you a lot of money in the event that you need to enter a nursing home or some other kind of extended care.
During this early stage in retirement, you have a lot of free time and a big budget, which means that you could be tempted to go blow a big chunk of it on something exciting. Maybe you are longing for that boat you always wanted, or you are ready to finally go on that trip to Greece you have been talking about for years. You might think that this is the perfect time to buy that vacation home you have been eyeing. However, this is not the time to blow through all your savings. Remember that this money needs to last you for decades to come, so be cautious about your spending when you first retire.
You may consider taking a part-time job, starting a business, or trying a new career in early retirement. Maybe a certain career field has always appealed to you, but you couldn’t afford to raise your family on what it pays. In retirement, you have the time and resources to pursue a new career, regardless of what it pays. Additionally, remember to balance your entertainment between more expensive and inexpensive/free hobbies; try volunteering for local organizations for a sense of satisfaction without a high price tag.
Additionally, you may consider relocating after you are retired. Now that you do not have a career tying you to one place, you might think about flying the coop. You will want to consider how this will look with your retirement budget, as moving comes with costs. Additionally, if you move somewhere with a higher cost of living, it could end up being detrimental to your budget. Consider these factors when deciding whether or not to relocate.
Middle Retirement (ages 70 to 80)
Come middle retirement, you will be receiving Social Security, as the longest you can defer it is age 70. By 70 and a half, you will also have to start taking from certain types of retirement accounts if you have them, such as 401ks, 457bs, or Roth IRAs. This is a good time to go over your asset allocation.
As well as the additional income you can expect to receive, you may be bored or no longer able to do some of the activities you participated in when you were freshly retired, such as traveling. This will probably lower your budget as you may wish to spend more time at home or you may be more focused on spending time with grandchildren. Additionally, it is likely that your children no longer need your financial help anymore, and you may no longer need to pay for term life insurance if you are, as these policies generally expire at age 65. This means at this stage of retirement, if the proper planning, you are probably in a good financial position.
This is a good time to look over your will or estate plan, as it may have been many years since the last time you updated it. While you are still in a good mental state, it is important to make sure all of your affairs are in order should you pass away. Give someone you trust the financial power of attorney that kicks in once you are not able to manage money and healthcare power of attorney in the event that you need someone to make medical decisions for you.
Late Retirement (age 80 and beyond)
After age 80, you are in the late stage of retirement. You may have higher health care costs now due to a chronic condition and it is typical for spending on medical needs to increase during the late stages of life. While Medicare covers some health care expenses, you will likely have co-payments, deductibles, and prescriptions that are out-of-pocket. If you move to an assisted-living facility, you may have other new expenses.
At this point, you will want to see how much money you have left and assess whether or not you need to change the rate at which you are withdrawing money. If you need more money, a reverse mortgage may be a good strategy for increasing your funds. Compare how much money you have, how much you will need, and how much you plan on leaving behind for your loved ones.
While retirement requires careful planning and budgeting, if you are properly prepared during each of the stages, you can take advantage of your newfound freedom. If you are a financial advisor who wants to retire but doesn’t have a budget, you need our RIA succession planning services. Contact advisorRETIRE™ for our financial advisor succession plans today.