How to Prepare for the Four Phases of Retirement
Your emotional health can be as important to an enjoyable retirement as your financial fitness
They don't call it the "golden years" for nothing. Retirement is often heralded as an exciting new chapter filled with relaxation, travel, personal growth and spending time with loved ones.
But it can come with its fair share of difficulties, including loss, boredom or lack of purpose.
You may be preparing for retirement financially, but are you preparing for it emotionally? In a recent TED talk, Riley Moynes, author and public speaker, outlined the four "phases" of retirement that he says older Americans should prepare for.
Phase 1: Vacation
Like the beginnings of a romantic relationship, the first phase of retirement is the honeymoon phase, or the vacation phase.
After decades of work, you can finally step back and enjoy some well-deserved freedom. This period may involve taking long-awaited trips, checking destinations off your bucket list, or enjoying new hobbies, interests or sports without schedule restrictions.
"It's a euphoric celebratory feeling that kicks in as you no longer have a set schedule or routine."
"It's a euphoric celebratory feeling that kicks in as you no longer have a set schedule or routine, and you tend to do whatever you want, whenever you want," says Rafael Rubio, president of Stable Retirement Planners in Southfield, Michigan.
This phase usually lasts a couple of years. During this time, it's important to be aware of your spending and try to stick to a budget, says Rubio. This can help you enjoy this phase while being realistic about long-term savings needs.
You may also want to postpone making a major purchase until you adapt to living on a fixed income.
"Overspending in the early phases or withdrawing too much from retirement accounts are frequent financial pitfalls," says Liam Hunt, director at Sophisticated Investor.
Phase 2: Loss
After an initial euphoric phase, many retirees may experience a period of emotional loss — sometimes lasting a year or more.
This phase typically involves grieving the loss of professional purpose and identity and struggling to fill now abundant free time. Rubio says that without the structure of work, retirees may feel more aimless and even question their self-worth.
"Once the emotional high of retiring has worn off and the vacation phase is over, many people feel a sense of disappointment."
"We are creatures of habit. Once the emotional high of retiring has worn off and the vacation phase is over, many people feel a sense of disappointment," he said. "They've spent so much time looking forward to retirement, so once it sets in, it can feel less exciting than it was hyped up to be."
Retiring from a long-held career means discontinuing an activity that may have given you immense pride and a sense of accomplishment. The void left can impact your confidence and self-esteem.
Anticipating this transition can help you adapt. You may be able to combat these feelings by working to reinvent yourself, says Rubio. That's where the third phase comes in.
Phase 3: Experimentation
After a period of loss, retirees adapt to their new reality by entering an experimentation phase. This involves proactively trying new activities, routines and lifestyles to find what gives you joy and purpose outside your career.
"Make yourself the CEO of your life and stay active in managing it," Rubio says. "Create life and financial goals. Stay active and fit. Create a new schedule for yourself and keep your mind engaged with the day-to-day."
This can include:
- Testing out part-time jobs to stay engaged.
- Volunteering for causes you care about.
- Joining clubs or groups like a book club or golf league.
- Enrolling in classes to learn new skills.
- Traveling to new destinations.
- Moving closer to family or a preferred community.
- Picking up old hobbies.
Embrace a curious mindset to try out different opportunities. Rubio says that even if some things don't stick long-term, you'll expand your horizons.
Pay attention to which activities satisfy you and give you that sense of joy and accomplishment. Devote more time to those winners.
Phase 4: Reward
In the final phase, retirees enter a rewarding period now that they have established new routines they enjoy. You may feel contentment that you've been able to adapt to retirement by figuring out your passions and priorities. In this last phase of their lives, retirees can focus on staying healthy, spending time with family and enjoying moments with less pressure to achieve.
"Your life has structure again. Only this time, you control every aspect of your life," says Rubio. "You have chosen activities that interest you, which makes it more meaningful."
"This phase is about ensuring long-term security and the ability to enjoy the fruits of one's labor."
Of course, the reward phase requires you to have enough saved to afford this home stretch. As health care costs rise later in life, it's important to have a plan to cover expenses not handled by Medicare.
You may also want to use this time to support family members and leave a legacy through inheritance or philanthropy.
"Financially, this phase is about ensuring long-term security and the ability to enjoy the fruits of one's labor," says Hunt. "This might involve strategic withdrawals from retirement accounts, investing in experiences or contributions to family or community and ensuring adequate savings for health care needs."
While it can be uniquely challenging, embrace retirement as an opportunity to reinvent yourself and build a new chapter focused on fulfillment.
Preparing for Every Phase
Preparing your finances in advance can help you maximize retirement freedom instead of worrying about affording each phase. Here are some tips to ensure you're prepared.
Audit Your Spending
- Carefully review your spending patterns before retiring to identify areas to cut back.
- Collect an inventory of retirement income sources, such as Social Security, pensions and retirement account distributions. Identify any gaps between costs and income.
- Organize your financial records, legal documents and insurance policies to simplify managing your money in retirement.
Pay Off Debt
- Make paying off your home, vehicles and credit cards a top priority before retiring. This reduces fixed expenses and ensures more income flows directly into savings.
- A paid-off home also allows you to downsize or use a reverse mortgage later to fund retirement costs.
Boost Your Savings
- Shift any extra cash flow into bulking up retirement savings in pre-tax accounts like 401(k)s and IRAs.
- Review your asset allocation in your investment and retirement-savings accounts and ensure your money is invested appropriately for your timeline and risk tolerance. Consider getting help from a financial planner if needed.
- Identify any pensions, annuities, or other income-generating investments that provide reliable monthly distributions to cover costs.
Delay Social Security
- Consider when to begin taking Social Security benefits based on your full retirement age and estimated lifespan. Delaying until age 70 provides larger payouts.
Protect Your Health
- Evaluate Medicare Advantage, Medigap, and Part D prescription drug plans annually to find affordable supplemental coverage with the right benefits once you become eligible.
- Make fitness and preventative medical care a priority to reduce health care costs later. You may want to set advance directives ahead of time for added protection.
Work Part-Time
- If you can, consider working part-time during early retirement phases for added income, access to benefits and to ease the career transition emotionally.
Look at retirement as a blank page to write an exciting new chapter focused on your passions and purpose.
It's important to prepare ahead and stay proactive to make sure you have the financial means to fund each phase. The key is maintaining an adaptive mindset as your needs and priorities evolve throughout retirement.
