If you’re prepared financially and physically healthy, retirement can last decades. The four stages of a long retirement have different expenses and require distinct approaches to budgeting. Even with a shorter retirement, you’ll go through the same stages, just in a condensed time frame. Here’s what those stages look like and how to handle your finances accordingly.

Peri-Retirement (50 to 62)

Peri-retirement is the stage just before retirement. You’re still working, but retirement is approaching and you’re finally getting a clear picture of what your nest egg, income, and expenses will look like. You’re also getting closer to figuring out what you’ll do with your days once you’re free to fill them as you please. What seemed merely theoretical earlier in your working life starts to seem real. We put age 62 on it, the age when people first qualify for reduced Social Security payments. But some people might retire at 60 while others keep working past 70.

Key Takeaways

  • Retirement can last decades when one is physically healthy and financially prepared.
  • The four stages of retirement are different and require distinct approaches.
  • The phase before retirement—the peri-retirement stage—occurs between the ages and 50 to 62; it is an important time to begin planning retirement needs like monthly expenses and homeownership.
  • Early-retirement can happen between the ages of 62 and 70, which is a time when some people consider taking part-time jobs to help manage expenses.
  • It makes a lot of sense to revisit asset allocations during the middle retirement stage—ages to 70 and 80—and make sure estate planning is in order.
  • After the age of 80, the late retirement stage begins and long-term care insurance can ease some of the burdens of healthcare expenses.

At this stage, asses your likely income and expenses after you exit the workforce. What will you receive from a pension or Social Security? What are the balances in your retirement plans, such as 401(k)s, 403(b)s, or IRAs, and how much will you be able to withdraw each month? Will you have paid off your mortgage, and if not, how much do you still owe and for how long?

You may be in a strong enough position financially to seriously evaluate whether you can afford to retire early. Your employer might downsize, and you might find yourself considering whether to accept a buyout or be forced to accept one. If you run a family business, this is a good time to create a succession plan. And if you have not yet reached your financial goals, it's a good time to work more hours, change jobs, or actively pursue a promotion so that you can add to retirement savings.

Peri-retirement is also a good time to reevaluate your monthly and annual expenses and cut back on costs that have crept up over the years. Eliminate any wasteful spending and give your retirement budget some breathing room. Also, at this stage (as well as, possibly, the early stages of your retirement), you may still have major expenses like putting your kids through college, making a down payment on a home, or paying for a wedding. Finally, you might want to replace your usual vacations with trips to places you’ve envisioned yourself moving to during retirement. 

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How Much Should I Save for Retirement?

Early Retirement (62 to 70)

Some of the biggest changes in your budget will occur when you first retire. You’ll no longer receive a steady paycheck, unless you have a pension. You’ll need a plan for managing your income during retirement, and you’ll need to decide when to start claiming Social Security benefits. You might also lose employer-sponsored health insurance. Make sure to plan for how your spouse and any dependents will get health insurance if they are on your health plan. If you or your spouse won’t be old enough to enroll in Medicare yet, you’ll need to see if you qualify for Medicaid or you might buy a private health insurance plan

You might also want to buy long-term care insurance if you haven't already (some experts advise buying it in your mid-50s for the most choice and best rates). Premiums can reach several thousand dollars a year, but that's a bargain if you find you need nursing home or other long-term care. 

You may be tempted to go on a spending spree at this early stage of retirement. You'll have a lot of free time, while still healthy and energetic. In this phase, you might want to buy that sports car you’ve always dreamed of, take an extended European vacation, go to culinary school, or take up sailing. With more freedom to travel, you may want to buy a vacation property in your favorite spot or a second home in a sunny locale to escape to during harsh winters. Hold back on huge expenses—you can quickly blow through your savings if you treat retirement like winning the lottery. 

One way to manage new expenses in early retirement is to take a part-time or seasonal job, start a business that gives you flexibility in your hours, or perhaps take a break for a while before jumping into a new career—the one you could never get into before because it didn’t pay enough. Earning $35,000 a year doesn’t cut it when you need $70,000, but once you’ve retired, it looks better than earning nothing, and at this point, it’s more about personal satisfaction, anyway. You can also balance the expensive activities you want to spend time on with inexpensive or free ones: volunteer to train service dogs, teach a photography class at your local community center, or lead biking excursions.

63 Years Old

The average retirement age in the United States, according to the U.S. Census Bureau.

This might be the time to move somewhere more desirable now that your job no longer ties you to a certain location. There will be costs associated with moving, as well as possible transaction costs associated with selling your home. Have you ever dreamed about retiring in Ecuador, France or Monaco? Depending on the cost of living where you currently reside versus that where you’re headed, moving could be a boon to your financial situation—or a major belt tightener!

Middle Retirement (ages 70 to 80)

By middle retirement, you’ll likely be receiving Social Security benefits (the longest you can hold off from claiming benefits—and get increased payments—is age 70). At age 70.5, you’ll have to start taking required minimum distributions from certain types of retirement accounts: profit-sharing, 401(k), 403(b), 457(b) and Roth 401(k) plans, as well as most types of IRAs (but not Roth IRAs). This is also an ideal time to revisit your asset allocation, if you aren't in an investment that does this automatically, such as a target date fund.

In addition to receiving more income in this stage, you might be tired of some of the travel and new activities you pursued during early retirement, so your expenses might decrease. You might want to travel less and stay home more, or your travel might be centered around less expensive trips to visit your grandchildren and other friends or family. With luck, your kids are established enough in their careers that they no longer turn to you for money. Also, you probably aren’t paying for term life insurance or long-term disability insurance anymore because these policies typically expire when you turn 65.

You might have created a will or estate plan when your children were younger because you wanted to make sure that, if something happened to you, they’d be taken care of. Have you updated these documents since then? While you’re still healthy and mentally capable, make sure your estate plan is in order, so your money and assets are distributed the way you want after you pass away.

You might want to give someone financial power of attorney that kicks in if you become unable to manage your money and healthcare power of attorney, in case you need someone else to make your medical decisions.

Late Retirement (80 and up)

In late retirement, you will likely have increased healthcare costs because medical spending tends to be highest in the last years of life. Medicare will cover some of your expenses, but you’ll still have costs for such things as co-payments, deductibles, coinsurance, and/or prescriptions.

18 Years

The average retirement length, according to the U.S. Census Bureau.

You might have new expenses in late retirement if you move to an independent or assisted living facility or if your health means you need to move to a nursing home or hire a home health aide. If you have long-term care insurance, it will ease the burden of any nursing home or home health aide bills. Aside from a possible increase in healthcare costs, your other expenses will be similar in late retirement to what they were in middle retirement unless you make a major change, like moving.  

You’ll want to reassess your nest egg and decide whether you should be withdrawing money at a faster or slower rate. If you’re running low on cash and you still live in your home, you might consider a reverse mortgage as a source of funds. Looking at what you have left, you’ll need to think about what you want to spend during your lifetime and what you want to leave to others. Make sure any charitable bequests are in place. 

The Bottom Line

Retirement is both an event and a process. In one plausible scenario, your benefits and savings must cover your expenses for three decades or more. The expenses at each stage of retirement are associated with how you choose to spend your time, where you decide to live, and how your health holds up. If you take these factors into account and evaluate how they will change throughout retirement, you can budget accordingly.

At each stage, spend the time to crunch the numbers and draw up those budgets. It's the best way to understand where you are and what to do next.