Different phases call for different strategies

If you’re physically healthy and financially prepared, your retirement could last for decades. During that time, it may go through several distinct phases, with changing levels of income and expenses that require different approaches to budgeting. Even with a shorter retirement, you’ll likely experience much the same stages, just in a condensed time frame. While experts give these phases a variety of names and sometimes number them differently, here’s what to expect, based on a four-stage model.


  • Retirement can last for decades if you’re physically healthy and financially prepared.
  • Retirement isn’t just one phase of life, but a succession of phases with different spending priorities and budgeting needs.
  • A four-phase model for retirement consists of pre-retirement (age 50 to 62 or so), the early period of retirement (62 to 70), middle retirement (70 to 80), and late retirement (80 and up).

Pre-Retirement (age 50 to 62 or so)

Pre-retirement (sometimes referred to as “peri-retirement”) is the decade or thereabouts leading up to retirement. You’re still working, but retirement is approaching and 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 as the end of this period because it’s the age when people first qualify for Social Security payments. But some people might retire at 55 or 60 while others keep working well past 70—or never retire at all. (Incidentally, starting to collect Social Security at 62 is usually a bad idea because if you do, your monthly benefits will be permanently reduced.)

You may be in a strong enough financial position to seriously consider early retirement. 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 an opportune time to create a succession plan. And if you haven’t reached your financial goals yet, it could a good time to start saving more aggressively.

Early Period of Retirement (62 to 70)

Some of the biggest changes in your budget will occur when you first retire. You’ll no longer receive a steady paycheck, unless you have 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 might also lose employer-sponsored health insurance, so make sure to plan for how you, your spouse, and any dependents will get coverage if they are on your policy. If you or your spouse won’t be old enough to enroll in Medicare yet, you’ll need to consider a private health insurance plan or buying a policy through the Affordable Care Act’s Health Insurance Marketplace.

You may be tempted to go on a spending spree at this early stage of retirement. You’ll have a lot of free time and probably a lot of pent-up wants. You might want to buy that sports car you’ve always dreamed of, take an extended European vacation, go to culinary school, or take up sailing. You might want to buy a vacation property in your favorite spot or a second home in a sunny locale to escape to during harsh winters. If your budget will accommodate it, feel free. But beware the temptation to blow through your savings as if you’d just won the lottery.

One way to manage new expenses in early retirement—and ease the drain on your savings—is to bring in some income. That might mean taking a part-time or seasonal job, starting a business that gives you flexibility in your hours, or even transitioning into a new career—possibly one you passed up in the past 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 (assuming you’re OK financially), life may be more about personal satisfaction, anyway. You can also balance the expensive activities you want to spend time and money on with inexpensive or free ones: volunteer to train service dogs, teach a photography class at your local community center, or lead biking excursions.

In addition, this might be the time to move somewhere more desirable now that your job no longer ties you to a certain location. 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!

63 Years Old

The average retirement age for women in the United States, according to U.S. Census Bureau data. For men it’s 65.

Middle Retirement (ages 70 to 80)

By this phase, you’ll likely be receiving Social Security benefits (there is no financial incentive to delay past age 70). At age 72, 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 most types of IRAs (but not Roth IRAs). This is also a good time to revisit your asset allocation, if you aren’t in an investment that does this automatically, such as a target date fund.

In addition to receiving some extra income in this stage, you could see your expenses go down. You may want to travel less and stay home more, or your travel might be centered around less expensive trips to visit grandchildren and other friends or family. With luck, your kids are established enough in their careers that they no longer turn to you for money. Also, you may not need life insurance (or as much of it) anymore.

You might have created a will and estate plan when your children were younger because you wanted to make sure that, if something happened to you, they’d be taken care of. Now you may want to revisit those plans and see if they still express your wishes.

You might also want to give someone financial power of attorney that kicks in if you become unable to manage your money and establish a healthcare power of attorney in case you need someone else to make your medical decisions.

Late Retirement (80 and up)

In late retirement, you will likely face increased healthcare costs because medical spending tends to be highest at that time of life. Medicare will cover many of your expenses, but you’ll still have out-of-pocket costs for things like co-payments and deductibles.

You might have additional expenses in late retirement if you move to an independent or assisted living facility or if you need to move to a nursing home or hire a home health aide. Aside from a possible increase in healthcare costs, your other expenses could be similar in late retirement to what they were in middle retirement.

At this stage, you may want to reassess your retirement savings and how adequate they are to see you through. If you’re running low on cash and you still live in your home, you could 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 hope to leave to others, including any charitable bequests.

The Bottom Line

Retirement is both an event and a process. In one plausible scenario, your benefits and savings will have to cover your expenses for three decades or more. The expenses at each stage 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 try to consider how they may change throughout your retirement, you can budget accordingly.