1.) Pre-Retirement
This phase occurs while you are still working but nearing retirement age. It involves creating your retirement goals and determining how much money you need to achieve those aspirations. If you are unsure where to start, consider drafting a budget of your projected expenses. Comparing these estimated costs with your current investments and savings will help establish how much money you will need in retirement.
2.) Early Retirement
People usually pursue passions when they first retire, such as traveling, playing sports, or participating in non-profit work. Since these activities cost money, having a consistent cash flow during this time is crucial. This step can be challenging, as ample funds are needed to pay for necessities and insurance as well as leisure. Some retirees seek out part-time jobs to pay for additional expenses. However, it’s important to keep in mind that these positions usually do not come with benefits.
3.) Full Retirement
When individuals reach full retirement, they typically replace more ambitious goals with less strenuous activities. For example, you may begin to devote more time toward hobbies or join a local club. Although your expenses may significantly decrease during this phase, it’s still a good idea to be cautious about withdrawing from your retirement accounts. Low-interest rates may lead you to deplete resources if you take out too much at this point.
4.) Final Retirement
The last few years of retirement can be the most challenging, especially for those who develop physical or mental health conditions associated with aging. Depending on the severity of your health situation, you may need to move into a nursing home or assisted care facility. Given these realities, medical costs are often the biggest concern for retirees during this stage. Even if you do not need assisted living services, you may still need sufficient funds to cover medical bills and prescriptions.