(NC) Looking at retirement as consisting of several phases – each with different spending characteristics –can help you to more accurately budget for your post-work years and create a strategy for taking income from your nest egg.
In early retirement, people are often able to continue in the same manner as in their pre-retirement years. If your health is good, then you’ll want to continue the activities you love. You’ll have even more time to pursue them and to introduce yourself to new ones. It may also be a time in your life when you are financially assisting adult children.
For this phase, you may want to have the same income as in pre-retirement if you can afford it, given that your discretionary spending may be fairly high. This reality challenges the common perception that as soon as you leave the workforce your income needs will drop to 70 or 80 per cent of your pre-retirement income.
Once people reach their mid-70s, life generally slows down a bit more and activities are less strenuous. Health concerns may begin to affect activity levels. There is usually less enthusiasm for lengthy vacations, and there is more of a desire for a home-based, less expensive lifestyle. This may also be the time when you downsize your home, buy fewer clothes, and require fewer material goods. Discretionary spending will decrease, so your budget in these years may decline by 20 or 30 per cent.
The final phase of one’s retirement can be marked by decreasing physical and mental abilities, more medical concerns, and more rest. Although it can be difficult to foresee what your interests, ability level, and health will be like in these years, spending will likely remain about the same as in the middle retirement phase. There will be less discretionary spending than in the earlier stages of retirement, but essential ones, such as medical expenses, may increase.
“The key consideration is trying to get the most out of your money so you can get the most out of your retirement life,” says Tim Cottee, vice president of retirement planning at Investors Group. “Often Canadians focus so much on avoiding overspending that they end up underliving in the years where they have the most freedom to do what they have always wanted to do.”