The way this Leisure Freak sees it, we all change as we age so it should come as no surprise that there are 3 Stages of Retirement. When I was first starting my early retirement quest, you know, all the planning, the saving, the disciplined spending, I was also watching our parents and grandparents. You see, I wanted to plan financially for an early retirement but also understand what my lifestyle would be like once we aged. The reason being because we all age and we came from the same genetic pool of those we were watching thus giving me some idea of what to expect.
That was also a huge reason why I wanted to retire early. It was obvious that I would enjoy retirement much more as the younger “me” than I will be able to as the 65-year-old and older “me”. By enjoy I mean being more active, energetic, travel, hobbies, and just plain being more able-bodied to pursue whatever passions I wanted to pursue.
When I retired at age 51 I could already see decline from the 40-year-old starry-eyed early retirement planning “me”. In my mind I was still 35 but my body said differently as I tackled physical labor and sports and paid dearly for it with aches and pains when I lost fact of how old my body really was. Think about what you did 10 years ago. Go back even 20 years ago and visualize all the things you did then and how your lifestyle is different today. Also consider what you spent your money on back then and what you spend it on now. It is probably vastly different.
So here is the point of this post. You need to consider this fact of life in your retirement financial plan because you are going to experience different spending and income needs. We change in both ability and interests as we age. Watching family members in their retirement as they migrated from one retirement stage to another gave me an idea of how I wanted to look at saving for and funding my own early and hopefully very long retirement. I did so by considering that there are 3 stages of retirement with different budget and funding needs.
First Stage: Early Retirement.
This was the easiest to figure out. It was pretty much what I was living. I know that my going to work costs will disappear and so will my savings rate.
I know I will have more time but we have a vacation budget that is based on many years of vacations and I don’t intend to travel more than we already were doing. I see my Early Retirement as an adventure and I have set aside some money for vacation budget-busting trips we have on the list but for most years it is within a budget. I did allow in my budget a slight bump-up from pre-retirement vacationing budgets to pay for unplanned spontaneous travel opportunities.
I planned on continuing my hobbies, sports, and social life just as I have done so I know the cost to do all that.
This is the time of my retirement when I am at my best health, energy, and willingness to do many things so I do realize maintaining my spending discipline is vital to being able to continue funding my next retirement stages. This is a stage I defined as going until age 65. Until then health insurance is an unknown so I do have to allow in my budget for increases that may seem insane now but who knows down the road what they will be.
Second Stage: Standard Retirement.
This is the traditional retirement time when you start Medicare, Social Security is either being collected or soon will be and based on what I saw with our own parents I can see myself slowing down a bit. Less travel, less sports, and maybe trimming back on my hobbies. Interests and passions change and so doe’s health.
I plan on there being less medical insurance cost due to Medicare but plan on having more Doctor visit cost and medications. In my early retirement I am staying active with a sustainable exercise routine and trying to eat healthier which our folks really didn’t do. I may surprise myself and be more active than I planned. I do hope so.
This stage is also when we will probably downsize our home. I have a quarter acre of yard to keep up and a two-story house. We are staying here to be close to our kids and grand-kids but as we all grow older we may consider moving somewhere else less expensive.
I see this time in our lives where if we stay healthy we will be spending less than our early retirement years. I see this stage lasting until sometime in our early 70s.
Third Stage: Last and final stage of retirement.
This is the stage that will depend a lot on health. I see this as a time when things slow down and a substantial decrease in travel and activity. For some people this may not be the case but from watching our own folks this is when they didn’t care to put up with all the BS associated to traveling anymore. You can be content in life with a lot less going on. I can see a decrease in spending with a big question mark on medical cost. A lot of people throw around the need for long-term care and I am aware of that but so far in our families that hasn’t been a big issue. Seems we are pretty independent right up until the end with only some short-term care required.
Figuring out the numbers.
I took a duel retirement cost approach in looking at what I needed to fund my retirement. One where it be the same cost as Early Retirement through the 3 stages where some costs would decrease and medical would increase to even it out. The other approach was using Ty Bernicke’s Reality Retirement Planning where his studies show that we cut our spending at age 56by 2% to 3% per year until spending stabilizes at age 76.
What this did was show me whether I had enough money to last until my best guess expiration date by running the numbers both ways in the awesome retirement calculator from FIRECalc.
This Monte Carlo type calculator uses 113 investment cycles to find the likelihood of your retirement funding success for the years of retirement you entered. I ran the numbers against both approaches under the Spending Models tab to see how my planned savings would come out.
Planning and executing your early retirement isn’t going to be an exact science. There are too many unknowns spanning many years but having a plan is a surer way to success than just winging it. Having some funds set aside for emergencies is also prudent. When making or assessing your strategic retire early plan, consider that there are 3 Stages of Retirement with different funding needs to help you see that you are on track or in trouble.
Do you agree there are 3 Stages of Retirement? Did you adjust your savings goals to account for multiple retirement stages?