Your retirement years might stretch for decades if you enter them in good physical shape and with enough financial resources. Throughout that period, it may move through several unique stages, each of which will include shifting amounts of revenue and spending, which would need various ways of budgeting.
Your source(s) of income will significantly determine how comfortable your retirement will be. Retirement looks quite different for those who have earned a low income compared to those who have earned a higher salary and have access to inexpensive healthcare.
Pre-Retirement (Ages 50 to 62 or So)
Pre-retirement, sometimes known as "peri-retirement," is the period, often spanning a decade or more, immediately before full retirement. You are still employed, but your retirement is drawing near, and you are finally getting a good idea of your retirement savings (if you have any), income, and costs.
The age of 62 was chosen as the cutoff point for this era since it is the age at which individuals become eligible to receive payments from Social Security. Some may continue to work much into the age of 70 or never retire, while others may retire at age 55 or 60. (Furthermore, beginning to collect Social Security before the age of 62 is often not a good choice since doing so would result in a permanent reduction in your monthly payments.) At this point, evaluating your expected income and costs is essential once you leave the employment.
Your financial situation may be stable enough to consider early retirement seriously. Your company may decide to reduce its workforce, in which case you may be offered a buyout and have to decide whether or not to take it. If you manage a family company, now is the perfect moment to formulate and implement a succession strategy. Even if you haven't accomplished your monetary objectives yet, this could be a good moment to save money more proactively.
According to research conducted by Vanguard in 2022, the median balance in a defined contribution plan was $35,345. There are a lot of people who can't retire on this amount because it's just not enough. You will be able to create some wiggle room in your retirement budget if you cut out any unnecessary spending and formulate a strategy for how to generate additional income, such as selling your home for less money, renting out a room in your home, getting a part-time job, or continuing to work at the job you have for a few more years.
Early Period of Retirement (Ages 62 to 70)
When you begin your retirement, you will experience some of the most substantial adjustments in your budget. You will no longer be eligible for a consistent payment if you do not have a pension. You will require a strategy for managing your income throughout retirement, and you will need to decide when you will start collecting Social Security payments. You might potentially lose the health insurance your company provides for you and your family, so be sure you have a plan for how you, your spouse, and any dependents will continue to be covered if they are on your policy.
If either you or your spouse will not be eligible for Medicare until later in life, you will need to investigate the possibility of enrolling in a private health insurance plan or purchasing a policy via the Health Insurance Marketplace established by the Affordable Care Act. If you are a senior with a limited income and do not have a savings account to fall back on during retirement, you should make an effort to have the plan to supplement your social security payments, such as working part-time.
Middle Retirement (Ages 70 to 80)
You should anticipate getting payments from the Social Security Administration. At the age of 73, you will be obliged to begin withdrawing required minimum distributions from certain kinds of retirement accounts, including profit-sharing, 401(k), 403(b), 457(b), and Roth 401(k) plans, in addition to the majority of forms of IRAs (but not Roth IRAs). If you are not already invested in an investment that automatically allocates your assets for you, such as a target-date fund, now is a good time to review your asset allocation strategy.
At this point, you could find that your costs are beginning to decrease. You can decide that you want to travel less and remain at home more, or you might decide to focus your travel on less costly excursions to see your grandkids and other friends and relatives. If you're lucky, your children have reached a point in their professional lives when they no longer need your financial support. Also, it's possible that you no longer need life insurance, or at least not as much of it.
