Rethinking Retirement: More Than just a “Yes or No” Decision

Retirement is often viewed as a binary event – you either are retired, or you’re not. However, in reality, retirement is a journey that unfolds in stages, each with its own financial needs and challenges. Effective retirement planning should begin long before the retirement date and continue through each stage of life. Whether your retirement spans decades or is a shorter period, it’s essential to recognize and plan for the different phases.

In fact, viewing retirement as a series of stages allows you to better manage expenses and adjust your approach to budgeting. These stages include pre-retirement, early retirement, middle retirement, and late retirement. Let’s explore the first stage of retirement: pre-retirement, and how to handle your finances during this critical time.

Stage 1: Pre-Retirement (Ages 50 to 62)

The pre-retirement phase marks the time when you’re still working, but retirement is on the horizon. As you approach this stage, you start to get a clearer picture of your financial situation, including your nest egg, income, and anticipated expenses. At this point, many of your financial responsibilities are either winding down or have already been completed—perhaps the kids are out of college, and you’re no longer shouldering the cost of raising them. This is also when you start thinking about how you want to spend your days after you stop working.

By age 62, you become eligible for reduced Social Security payments, but you may choose to retire earlier or work past this age, depending on your financial situation and personal preferences. During this stage, it’s important to assess your likely income and expenses once you retire.

Assess Your Financial Situation

Take a deep dive into your current finances. How much will you receive from Social Security or a pension? What are your retirement account balances (401(k), 403(b), IRA, etc.), and how much can you comfortably withdraw monthly? Will you have your mortgage paid off by the time you retire, or will you still have outstanding debt? These are crucial questions that will help you evaluate if you can retire comfortably or if you need to make adjustments.

Consider Early Retirement (If Possible)

If you’re thinking about retiring earlier than planned, this is the time to evaluate whether it’s financially viable. Some may find themselves considering early retirement after a company downsizing or after receiving a buyout offer. If you’re a business owner, it’s a good opportunity to create a succession plan. If you’re not yet where you want to be financially, consider working longer, changing jobs, or actively seeking a promotion to increase your earnings and retirement savings.

Reevaluating Spending and Preparing for the Future

Pre-retirement is also a time to reevaluate your monthly and annual expenses. Over the years, small costs can creep up, and unnecessary spending can accumulate. Take the time now to cut back on wasteful spending and give your retirement budget some breathing room. Creating a more efficient spending plan will allow you to save more for the future.

Exploring Retirement Locations

If you’ve envisioned moving to a specific place during retirement, now is a great time to explore those locations. Instead of sticking to your usual vacation spots, consider visiting places where you might want to live during retirement. This will not only give you a sense of what those places are like but also help you mentally prepare for the lifestyle changes that come with retirement.

Next week, we’ll dive into how to handle the financial aspects of the second and third stages of retirement, ensuring that you make the most of both your time and money.

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