Go-Go, Slow-Go and No-Go Years: How To Create a Budget for Each Retirement Phase
Just as our working lives have different phases, from early in your career to raises and promotions that ideally enable you to buy a house and start a family, retirement also has phases of increased or decreased spending.
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Just as your salary ideally scales as your lifestyle gets more expensive during your working years, retirement works in a similar way — but in reverse. You can plan to spend more money early in retirement and less as time goes on, providing your health care costs and other needs are covered by long-term care insurance.
Let’s explore the different phases of retirement and how to plan for them.
Go-Go Retirement Years
Early in your retirement, whenever that might begin, you may have plans to travel, pursue hobbies and enjoy all the activities you didn’t have time for while working full-time. You might even take a part-time job or side gig to supplement your retirement savings and Social Security benefits. That money can be used to help fund trips and activities, leaving money in your investment accounts for expenses later in life, which could include assisted living and increased health care costs.
You might consider investing in long-term care insurance, which could relieve some of the financial burden in your later years and free up cash to enjoy retirement adventures while you are healthy and active enough to do so.
According to one study from GOBankingRates, Americans need an average of just over $1 million to live comfortably during a 30-year retirement. This figure varies dramatically depending on where you live, your needs, and your plans.
If you intend to travel the world, you’ll need more money saved than if your plans involve staying close to home and cuddling your grandchildren (although that can get costly, too). AARP listed travel as the third biggest expense for retired people.
If you intend to travel or pursue pricey hobbies, most people expect to do that in their earlier years of retirement. Make a list of all the trips you want to take and price out the costs. Budget for these travel costs the same way you do for housing, transportation, food, utilities and all your regular monthly expenses.
Slow-Go Years
Although the time frame varies depending on your general health, most people start to slow down in their mid-to-late 70s, although many people remain active into their 80s. As you start to slow down, you may find that living expenses also drop. Cruises or sightseeing tours may be replaced by local parks and museums or quiet lunches with friends.
You may be able to further cut expenses by downsizing your home or even selling your car. As you age, healthcare costs might eclipse other spending. You might have more frequent doctors’ visits, expensive prescription medications, and even hospital or nursing home stays.
AARP listed healthcare as the biggest spending category across all years of retirement, but it’s likely to increase later in retirement. It may be more difficult to predict costs during these Slow-Go years of retirement.
Ensure you have enough money in your investments, as well as the necessary insurance, to cover expenses without stress. During your Slow-Go Years, you want to focus on taking care of yourself and enjoying time with friends and family.
No-Go Retirement Years
It might be difficult to think about a time when you will slow down dramatically, perhaps even requiring help from family, friends or healthcare providers. If you’re fortunate, this won’t happen until you are well into your 80s or 90s.
If you haven’t already discussed estate planning with your loved ones, it’s not too late. Make sure you have a plan for wealth preservation and your loved ones know your intentions regarding estate distribution, as well as end-of-life care and even funeral or end-of-life celebration wishes.
Expenses can be difficult to predict at this time. A financial advisor can help ensure you have enough money left to sustain you through this stage of retirement.
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This article originally appeared on GOBankingRates.com: Go-Go, Slow-Go and No-Go Years: How To Create a Budget for Each Retirement Phase
