The 4 phases of retirement, and how you can plan for them

By David Snelling

When you think about planning for your retirement, a good starting point is to have a clear idea of what you want to achieve in the years after you stop working, and the lifestyle you want to enjoy.

Much of this will come down to the value of your assets, and effectively managing your wealth throughout your retirement.

You also need to consider the importance of preparing emotionally for financial independence once you have retired.

This will include the importance of planning ahead, and finding new structures and challenges to replace those that you will no longer enjoy once you have finished work.

The importance of ongoing financial planning

A key point to note is that your financial planning process doesn’t stop the day you retire.

I have an ongoing advice relationship with many clients who have already retired, and I can confirm that the planning and advice process hasn’t slowed down or got any less detailed or important. Indeed, planning in retirement is arguably more important as you transition from wealth accumulation to adjusting your mindset to spending your hard-earned money.

Some of the key financial planning issues you will need to consider throughout your retirement years will be:

  • Managing your ongoing expenditure to ensure you don’t run out of money in retirement
  • Having an effective investment strategy
  • Your residential property arrangements, including potentially downsizing to a smaller home
  • Your estate planning and legacy arrangements including potential gifts to reduce your Inheritance Tax (IHT) liability
  • Potential future care provision requirements.

By breaking down your retirement years into four different phases, you can give yourself some valuable perspective on your future requirements and planning needs.

You can then review each of the points above in each phase to consider how they may be affected and how your ongoing financial planning strategy can develop to manage them.

1. The immediate post-retirement period of active living

In the months after you finally stop working, you will want to make the most of a period while you are still healthy, physically able, and mentally willing to live an active lifestyle.

You are likely to have a bucket list of items and experiences you will want to tick off, and that the time limitations imposed by full-time employment have previously prevented you from enjoying.

From an expenditure perspective your outgoings are likely to be high during this phase, maybe even higher than in your immediate pre-retirement period.

Also, your income will of course have ceased, and you may well be in a period between retirement and receiving your State Pension. As a result, the demands upon your capital will be greater as you need to bridge the shortfall.

However, it’s worth remembering that this time of higher outgoings can be planned for. Indeed, many of our clients consider phasing their retirement by working reduced hours on more meaningful projects that make the most of their skills and years of experience. This can include consultancy roles and non-executive director positions. The additional income helps offset the cost of your increased spending on your retirement fund.

2. A quieter time as your retirement starts to take shape

After an initial period of activity and increased spending, you are likely to still be relatively active, but perhaps less willing to travel long distances so frequently.

You will have come through the whirlwind of phase one and perhaps be looking to settle down into some sort of retirement routine.

Indeed, finding a new routine and activities that can provide you with structure in your retirement could be important as you will no longer have the discipline and daily regime that working gave you.

Your overall spending is likely to decrease, but that’s not necessarily a hard-and-fast rule. You may still have a hankering for bursts of adventure, activity, and extended holidays.

Although the title of this section suggests peace and quiet, it may well be the case that you have never been busier and happier as you make the most of your retirement freedom.

3. A sedate time as you adjust to a much slower pace of life

In this third phase you may well still be enjoying a busy routine of activity, although you may eventually want to start slowing down and enjoying a more measured pace of life.

Whereas you may have been at the forefront of whichever activities you have been enjoying, this phase may well be the time when you start to encourage others to do some of the “heavy lifting” as you take on a less-strenuous role.

You will still very much be able to look after yourself, even if that may involve a possible downsize in property as you recognise that physically things could become more challenging in the not too distant future. This may particularly be the case if you want to move somewhere quieter, or closer to other members of your family for additional support.

4. A final phase when care arrangements may become an issue

It’s perhaps inevitable that any mention of care provision will automatically trigger images of an old people’s home.

However, the reality is far broader than that and it would be wrong to generalise. Indeed, many care issues can be managed in your own home.

For example, what you may see as a need for care in terms of not being able to climb the stairs easily could be solved with some support from your loved ones, installing a stairlift, or downsizing to a bungalow.

Even if your care arrangements do become more complex, the idea of full-time care could still be some way down the scale, as a lot of care provision involves a domiciliary package provided in your own home.

Furthermore, there are different styles of residential care, including living in a self-contained flat in a residential block This will still provide you with an element of independence with the reassurance that help is on hand if you need it.

So, it’s important to keep an open mind and realise that you can easily enjoy a fulfilling lifestyle during this phase, even though you may require an element of care provision.

At each of these four stages, expert financial advice, informed by cashflow forecasting, can give you the peace of mind that comes from knowing you’re making the correct financial decisions.

Get in touch

If you would like to discuss your own retirement planning please contact us by email or, if you prefer to speak to us, you can reach us in the UK on +44 (0) 208 0044900 or in Hong Kong on +852 39039004.

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