When you’re going through the process of stopping work and starting to enjoy your retirement years, you may be tempted to see your retirement as a single entity.
However, it’s important to bear in mind that this period may last for 20 years or more, and will likely throw up a series of financial and lifestyle challenges. So, from a planning perspective, it can make sense to separate your life after work into different component parts.
For example, it’s likely that your income requirements could vary throughout your retirement years, and it’s crucial that you’re aware of this, so you can take steps to avoid running out of money.
It’s also worth remembering that there is no “one-size-fits-all” retirement. Everyone is different and will approach retirement in different ways.
Having said that, we tend to explain to our clients that it can help to break retirement into three distinct stages.
Read on to find out what those stages are, and how you can plan for them.
1. Active living in your immediate post-retirement years
In the period immediately after you stop working, you are likely to be at your most active.
You will doubtless have a bucket list of things you want to do now you no longer have time constraints imposed by your employment.
Furthermore, you’re likely to be at your most physically able, and more prepared to take on strenuous activities than you may be further down the road.
Retirement will initially be a novelty as it will be the first time in perhaps 40 years that you’ve had time to do the things you want to do, as well as a sum of money you can access to accomplish them.
Because of this, a key point to bear in mind is that you are likely to be spending a lot of money.
Not only could you be enjoying expensive overseas holidays, but you’ll also effectively be living a life of seven-day weekends.
You may have assumed that your spending would go down when you stop working, with no more work-related expenses such as commuting costs and lunches. But, in reality, it will be safer to assume that your overall spending is likely to remain very much at the level it was while you were working.
The temptation will be there to go out and achieve those goals and, subject to the assets you have accrued, there’s no reason why you can’t fulfil some of the dreams you’ve been harbouring during your working life.
2. A quieter period, as you adjust to a less-active lifestyle
There’s no hard-and-fast rule as to how long the first stage of your retirement will last. But once it does end, you will probably be looking to settle down and enjoy a comfortable, perhaps quieter retirement life.
You may well still be travelling. But, having ticked off a lot of the expensive trips, you could be ready to simply spend time on the beach, rather than take on any more “once in a lifetime” excursions.
However, you could be looking for new activities to keep you busy and new challenges to set yourself. These could include other items on your bucket list, such as new hobbies that may have been too time-consuming or not feasible to take up while you were working.
You will still be able to look after yourself, perhaps with some help through a possible downsize in property to reduce your overheads. You may also be looking to move somewhere quieter, or closer to other members of your family for additional support.
It’s likely that your income requirements may fall during this stage, although you will still clearly want to maintain a good quality of life.
3. The final phase as aging starts to take its toll
As you have read, the demarcation between the three stages of your retirement will be fluid. Most importantly, they will be unique to you.
For example, while many people expect to require an element of care provision in their final years, there’s no certainty that will be the case. However, it is something you may want to plan for.
There’s also no reason to automatically assume that “care provision” means going into a care home. Indeed, a lot of your care requirements may be fulfilled through a domiciliary care package, or even just some simple adaptions to your home.
Either way, it’s important to keep an open mind and realise that you can easily enjoy a fulfilling lifestyle during this phase, even though there is likely to be an element of slowing down and having a more sedentary lifestyle.
The importance of ongoing financial planning
With these stages in mind, you can see why your financial planning should continue throughout your retirement, rather than simply coming to a halt when you stop working.
Indeed, it’s fair to say that planning in retirement is probably even more important once you have started drawing from your accumulated retirement fund than it was when you were accruing your wealth.
There are key financial planning issues that you should be considering at each of the three stages of your retirement years that you have read about. These will include:
- Ensuring you don’t run out of money
- Having an effective investment strategy in place to grow your wealth
- Planning your legacy and ensuring your wealth passes to your chosen beneficiaries
- Your residential property arrangements, including potentially downsizing to a smaller home
You should be looking to review each of the four points outlined above at each stage of your retirement and adjusting your ongoing financial planning strategy to manage them.
Get in touch
If you want to discuss any of the issues you’ve read about in this article, please get in touch with us.
Please note
This article is for information only, it does not take into account your personal objectives, financial situation, or needs.
Please do not solely rely on anything you have read in this article and ensure that you conduct your own research to ensure any actions you may take are suitable for your circumstances.