How to plan your spending through the 3 stages of retirement

When you’re still in the workforce, the idea of retirement conjures an image of one long holiday doing whatever you want, whenever you want – finances permitting.

For most people, however, the reality of retirement is a little different. The typical retirement consists of several phases, each with its own spending pattern. Some phases involve more spending, some less.

If you want to create a successful retirement plan, the first step is to get a realistic idea of how your retirement years might unfold, so you can ensure you have enough money to support yourself for the duration.

Just as important, however, is coming to grips with how much you’re likely to spend during each retirement phase, so you can set a sensible budget for your spending.

Understanding your retirement years

For most Aussies, retirement generally progresses through three distinct stages. These periods are based on your health and the type of activities you pursue as you age. Your spending pattern in each stage reflects this.

Although we’re all different, a simple way to think about your retirement is to view it as being broken into:

Stage 1: The active years

In the early years, you will generally have the same physical capabilities you had in the latter years of your working life. You will have more free time in retirement, so if you are still fit and healthy, plan to spend more money on leisure activities and less on work-related expenses.

This phase often involves more time for hobbies, entertainment, overseas or local travel, home renovation, volunteering and caring for grandchildren. Increasingly, some active retirees choose to continue working or consulting part-time.

Realistically, depending on your health and fitness, this phase could last 10 years or more.

Stage 2: The sedentary years