If you’re financially prepared and physically healthy, retirement can last for decades. The different stages that make up your 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 in the near-enough future that 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 you might retire at 60 or keep working past 70.

At this stage, you should assess what your likely income and expenses will be once you're no longer in the workforce. What will you receive from a pension or Social Security? What is the balance in your retirement plans, such as 401(k)s, 403(b)s or IRAs, and how much will you be able to comfortably withdraw each month? Will you have paid off your mortgage already, and if not, how much will you still owe and for how long?

You may be in a strong enough position 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 aren’t where you want to be financially, it's a good time to work more, change jobs or actively pursue a promotion so you can earn more and save more for retirement while you have the chance. 

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 to 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. 


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 have a steady paycheck from your employer unless you get 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’ll also no longer have 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 sign up for a marketplace 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 will run you several thousand dollars a year but can end up being 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 lots of free time, and you'll likely still be healthy and energetic. In this honeymoon phase, you might want to buy that sports car you’ve always imagined yourself driving, 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 – you can quickly blow through your savings if you treat entering retirement like winning the lottery. 

One way to manage these new expenses is to take a part-time or seasonal job, start a business that gives you flexibility in your hours and location or let yourself indulge 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.

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 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 traditional, SEP and SIMPLE IRAs (but not Roth IRAs). Now is a good time to reassess your asset allocation if you aren't in an investment that does this for you, 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 be in the mood to stay home more, or your travel might be centered around inexpensive trips to visit your grandchildren. With luck, your kids are established enough in their careers that they no longer turn to the Bank of Mom and Dad. Also, you probably aren’t paying for term life insurance or long-term disability insurance anymore – these policies typically expire when you turn 65.

You might have created a will or estate plan when your children were young because you wanted to make sure they’d be taken care of if you and your spouse died simultaneously in a car accident. 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 should also give someone financial power of attorney that will kick 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 may have higher healthcare costs to treat a chronic condition or an acute illness. Medical spending tends to be highest in the last years of life. Medicare will cover some of your expenses, but you’ll still have out-of-pocket costs for copayments, deductibles, coinsurance and/or prescriptions. You might have new expenses if you decide to 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 a best-case scenario, your savings will need to last three decades or more. The expenses at each state 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 your 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.