Your retirement could last decades if you're physically fit and financially prepared. During that period, it may go through numerous separate phases, with shifting income and cost levels necessitating alternative budgeting tactics.
Pre-Retirement (Age 50-62 or so)
The decade or so coming up to retirement is known as pre-retirement. You’re still working, but retirement is approaching, and you’re finally getting a clear picture of your nest fund, income, and expenses (if you have any). We chose 62 as the end point since that’s when people start receiving Social Security payments.2 However, some people retire at 55 or 60, while others work well into their 70s—or never retire at all. Assessing your expected income and expenses once you leave the working is critical at this time.
Early Period of Retirement (62-70)
When you first retire, your finances will undergo some big changes. Unless you have a pension, you will no longer receive a consistent paycheck. You’ll need a strategy for managing your income in retirement, as well as a determination of when to begin collecting Social Security payments. You may also lose employer-sponsored health insurance, so be sure you and your spouse, as well as any dependents on your policy, are covered.
Middle Retirement (70-80)
You’ll almost certainly get Social Security benefits. You must begin taking required minimum distributions from certain types of retirement accounts at the age of 72. If you aren’t in an investment that automatically adjusts your asset allocation, such as a target-date fund, now is an excellent moment to do so. Your expenses may be decreasing at this point. You may prefer to travel less and spend more time at home, or you may want to focus your travel on less expensive excursions to see grandchildren and other friends or family members. Hopefully, your children have progressed far enough in their careers that they no longer need money from you. Also, you may no longer require life insurance (or as much of it).
Late Retirement (80 and up)
Because medical spending is highest at that stage of life, you will most likely face higher healthcare bills in late retirement. Many of your expenses will be covered by Medicare, but you will still be responsible for co-payments and deductibles. If you can’t afford Medicare’s premiums and co-pays, look into Medicare Savings Programs, which are designed to assist low-income seniors.