When we think of retirement we often just group the last 20-30 years of our life together as one big stage of life.
But 30 years is a long time and more and more research is coming out on 3 distinct stages in retirement. Most commonly, these stages have been called the go-go years, the slow-go years, and the no-go years.
And after some thought, it makes sense to assume that the last decade of your retirement may look different than the first decade. After-all, a lot can change in 30 years just as most people have very different lives at age 25 than at age 55.
Here are some key differences between the retirement stages that are important to understand while planning your retirement.
Time to Go
The first decade or so of retirement is often called the go-go years and for good reason. Most retirees go and do the bulk of their travels and big adventures during this stage.
Consequently retirees tend to spend more during the go-go years as they have time to do many things that they couldn’t do during their career.
But as health declines in the mid-to-later part of retirement, many retirees’ spending habits start to change.
According to one study in 2013 (as shown in the below chart), retirement spending seems to slowly decrease (after adjusted for inflation) during the first 15 years of retirement then increases for the last 15.
Source:https://www.kitces.com/blog/age-banding-by-basu-to-model-retirement-spending-needs-by-category/
Looking at the chart it may appear that retirement spending tends to slowly decrease during the first 15 years. And while this is certainly true when we look at large groups of retirees, spending changes can be a lot more sudden and distinct for individuals.
For example, a retired couple may be very active travelers until one spouse breaks a hip and loses some mobility at which point their traveling spending may drop significantly instead of a smooth decline.
For these reasons, it may make sense to allocate a larger portion of retirement savings for your go-go years.
The 2nd Half
And while spending may decrease during the first 15 years, the data shows that spending does start to increase for the last 15.
And the cause to this increase can be traced back to what the retirees are spending on.
The chart below shows how retirees’ spending changes over time with the biggest difference coming from health care expenses in the last years of retirement.
Source:https://www.kitces.com/blog/age-banding-by-basu-to-model-retirement-spending-needs-by-category/
Conclusion
The studies and graphs can be very helpful to understand how spending tends to change for most people over the course of retirement. But just like everything, you certainly will want to take your own situation into account when planning your retirement.
Some people stay healthy for almost the entirety of their retirement while some don’t. Some retirees prefer to stay home while others want to travel the world. Everyone’s retirement is different and yours certainly won’t match up perfectly with a graph.
The most important thing is to have the flexibility in your retirement plan to adjust as your life evolves so that you can live life to the fullest throughout your entire retirement.
