The Phases of Retirement and How to Prepare for Them

    Everyone has a unique vision for how their retirement will unfold — a story they want to write for themselves once they move to the next phase of life.

    “The story is different for each person,” observes FPA member Monica L. Dwyer, a CERTIFIED FINANCIAL PLANNER™ (CFP®) professional with Harvest Financial Advisors in West Chester, Ohio. “In the beginning, some grapple with not working. One client told me that it took him a full year before he could relax and enjoy the morning paper without feeling he had to be somewhere. Others slide right into retirement and have been waiting for it for so long that they are really ready.”

    However unique a person’s vision for the next phase of life may be, though, there is a common thread to peoples’ stories, a reality that it’s important to be aware of, and to plan for in advance: the likelihood that retirement will unfold in several distinct stages, each with its own set of circumstances, priorities, challenges and rewards.  According to U.S. government figures, a man reaching age 65 today can expect to live, on average, until age 84.3. For a woman turning 65 today, the average life expectancy is 86.6. What’s more, about one out of every four 65-year-olds today will live past age 90, and one out of 10 will live past age 95.

    Simple math suggests that for many people, retirement could last two or three decades — or more. By having a clear idea of what each stage of retirement might look like, people can take important planning steps in advance to position themselves to make the most of each stage.

    Phase One of retirement is often about the fun stuff: attacking the bucket list with travel, pursuing hobbies, maybe continuing to work for income and/or as a volunteer, activities with friends and family, and so on. This is frequently called the “go-go” phase of retirement.

    Unique planning considerations:

    • Get a clear picture of current household expenses — the demand side of the cash flow equation, including both hard (food, housing, transportation, utilities, etc.) and discretionary (dining out, travel, hobbies etc.). This action-focused stage may require additional discretionary, lifestyle expenses. In a financial planning context. Your investment and income drawdown strategy should reflect this potentially higher-priced lifestyle. Be sure to account for expenses that may escalate in retirement, such as for healthcare, perhaps more travel and the like, as well as expenses that may drop off, such as work-related expenses. Also be sure the estimate accounts for inflation. 
    • Once a person reaches their 60s, key decisions loom about when to draw, and how to maximize, Social Security benefits. Does a person need to start drawing Social Security income earlier, starting at age 62, or can they wait until 65 or even 70 to turn that spigot on? Waiting allows a person to earn valuable “delayed retirement credits” that increase their monthly benefit when they do start taking payments. Those credits are equal to an annual 8 percent raise in benefits.
    • Absent a workplace health insurance plan, move to fill the health coverage void. Just prior to turning 65, file for Medicare benefits, and determine what additional healthcare coverage you need, if any, to supplement the benefits that Medicare provides.
    • Determine how to tax-efficiently handle the required minimum distributions that must come out of qualified retirement plans [401(k)s, traditional IRAs, etc.] starting at age 70.5.
    • What about work? Do you want to keep working? Do you need to keep working? Among employed Baby Boomers, two-thirds plan to, or already are, working past age 65, or do not plan to retire at all, according to a study by Transamerica. There are substantial benefits to continuing to work, including continued income and access to workplace benefits.
    • Firm up with your spouse/partner your vision for the type of housing and care you want if one or both of you has a long-term health issue, and how you plan to pay for that vision, whether that means setting aside a pool of money to cover retirement healthcare expenses or investing in some type of long-term care insurance. Then discuss your vision with other family members to ensure they are on the same page.


    Phase Two of retirement usually brings a slow-down. A person may not be as game for adventure and activity, and could be more limited by health issues. As a result, maybe they’re spending less on discretionary, lifestyle-oriented pursuits, but spending more for health and medical care.

    Unique planning considerations:

    • Keep monitoring income supply and spending habits. Are your assets on track to last as long as you need them to?
    • Reassess how your assets — retirement accounts, investment portfolio, etc. — are allocated and adjust as necessary to ensure they are appropriately diversified and not too conservative or too risky for your age and circumstances.
    • Revisit and update your estate documents as necessary, ensuring that beneficiary and account information for investments, credit cards, retirement accounts, bank accounts, life insurance policies, Social Security and pension statements, real estate property, personal property and debts, along with estate documents like your will, powers of attorney and living will, are all readily accessible.
    • If you (and your spouse) plan to “age in place” — to remain in your home, at least foreseeably — does the home need to be updated to accommodate limited mobility? What will the update cost, and how will you pay for it?


    During Phase Three of retirement, people tend to get more sedentary as they deal with the realities that come with advanced age: mobility limitations, health issues and the like.

    Unique planning considerations:

    • Health concerns, mobility issues, concerns about home upkeep and other factors could dictate a move to a new housing situation, such as an assisted living facility that better accommodates the new realities of this phase of retirement.
    • Is it time to stop driving? If so, what transportation options are available to get you where you need to go, and how to cope with this loss of freedom?
    • Coping with the reality of losing your spouse/partner and living alone.
    • Healthcare expenses tend to mount. About 50 percent of a person’s lifetime healthcare costs will occur during the last six months of life, according to a report from TIAA-CREF.
    • If you plan to pass certain assets to loved ones and/or to an organization or cause you support, be sure those intentions are specified in writing in legally sound estate planning documents.


    July 2018 — This column is provided by the Financial Planning Association® (FPA®) of Iowa, the principal professional organization for Certified Financial PlannerTM (CFP®) professionals. FPA seeks to elevate a profession that transforms lives through the power of financial planning. Through a collaborative effort to provide more than 23,000 members with tools and resources for professional education, business support, advocacy and community, FPA is the indispensable resource for CFP® professionals. Please credit FPA of Iowa if you use this column in whole or in part.

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