The three phases of retirement: Planning for your active, transitional and later years

Planning for retirement is like preparing for an uncharted voyage. While you might have a destination in mind, life rarely goes as expected.

Understanding the three phases of retirement helps clarify the process and reveals unique opportunities and challenges. From the thrill of ticking off bucket list items in your active phase to bracing for uncertainties in later years, there are a few essential things to keep in mind.

At First Financial, we specialise in making retirement dreams a reality. Hanging up your career is a significant milestone, but it’s just the beginning. We can guide you through the different phases of life that follow, ensuring a secure and comfortable future.

“Don’t simply retire from something; have something to retire to.”
– Harry Emerson Fosdick

The active phase of retirement is when retirees are at their most energetic and adventurous. Many aspire to travel the world, tick off bucket list items and make home improvements, like renovating the kitchen or repainting the bedrooms. It’s also a good time to visit friends and family who may not live locally and, for those with grandchildren, to spoil them with attention.

“Your spending is likely to be at its peak during these early years as it includes not only your basic living costs but also travel and lifestyle expenses,” says one of our principals, James Wrigley.

A solid financial plan, including superannuation, savings, and investments, is essential to support an active lifestyle. Our advisers create strategies to sustain your vibrant years and ensure stability. It’s important to plan for unexpected costs and conduct regular financial reviews to manage spending and adjust as needed. Staying proactive helps you enjoy your active years without depleting your resources too quickly.

“Age is an issue of mind over matter. If you don’t mind, it doesn’t matter.”
– Mark Twain

As you enter the transitional phase of retirement, lifestyle and spending patterns shift. “By this time, many retirees have ticked off most of their bucket list items and likely prefer domestic travel over international trips. In fact, many of our clients no longer want to endure 24-hour flights,” notes James Wrigley. Consequently, spending often decreases as the focus shifts from travel to everyday living expenses.

During the transitional years, mandatory drawdown rates for superannuation increase, requiring you to withdraw more from your super fund.

While overall spending may decrease, the cost of living usually rises due to inflation. This can affect your budget, making it essential to adjust your spending and financial plan accordingly.

You may need to adjust your finances during this phase to accommodate a different income level and rising healthcare costs. Proactively addressing these challenges will help you stay financially on track, adapt to evolving needs, and continue enjoying your golden years.

“The key to retirement is to find joy in the little things.”
– Susan Miller

In the later years of retirement, starting around the early 80s, declining health and increased medical expenses become more prominent, with the risk of chronic illnesses such as heart disease, diabetes and arthritis rising. Travel and discretionary spending typically decrease, and the major expense often shifts to moving into aged care if needed. “This situation becomes especially complex and costly if one partner requires care while the other remains at home,” explains James.

Strategic financial planning is crucial in the later years to ensure your funds last through your remaining years. During this time, it’s essential to revisit and update your estate plans, wills and powers of attorney to ensure your wishes are honoured.

If aged care is not needed, this phase often involves downsizing or moving to a senior living community to ease home maintenance and provide a safer environment tailored to your changing health needs. Budgeting for healthcare costs, including regular check-ups and medications, is also essential. As activities decrease, focusing on quality of life through community engagement, family time and enjoyable hobbies can significantly enhance your emotional and mental wellbeing.

Adjusting to life after the responsibilities and adrenaline of work and family commitments can be challenging, but staying engaged and active is key to maintaining physical and mental health through all three phases.

The average life expectancy in Australia is now approximately 81 years for men and 85 years for women, with many living well beyond these figures. For those who retire around 60-65, this means spending a significant portion of their lives in retirement, making it essential to be prepared physically, emotionally and financially.

Social interactions, continued learning and mental stimulation are beneficial throughout these years. Engaging in activities that keep the brain active, such as reading, solving puzzles and learning new skills, can promote fulfilment and enhance enjoyment well into advanced age.

Retirement isn’t the end of the road. It’s the beginning of a new journey with the potential to last a very long time. That’s why it’s important to have a clear vision of what you want it to be and a robust financial plan to sustain it through all three phases: active, transitional and later years.

At First Financial, we are committed to helping you achieve your retirement goals, ensuring each phase is enjoyable and comfortable. From retirement planning to aged care advisory services, we cover every step to secure your financial future.

Contact a friendly member of our team to learn more about the different phases of retirement or start on the pathway to wealth today.

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