Retirement is often viewed through the lens of working years and non-working years. Lumping retirement into a single 20+ year period is an oversimplification of a very significant time period in your life. While the phases of your working life can typically be broken down into 3 roughly 20-year time periods, which include early-stage career (age 25-45), peak earning years (ages 45-65), and retirement (age 65-85), I think retirement age needs to be examined more closely. The last stage (retirement) is so important in the planning process because it’s the only one that is difficult to fix if you make a mistake. If a 30-year-old makes a mistake with their investments, they have plenty of time to correct it. If a retiree makes a major mistake, they have a much harder time because they typically are no longer working and have a shorter time horizon compared to younger folks.
Let’s start off with what the specific phases of retirement are. They include pre-retirement, which includes the 5 years leading up to your actual retirement date. Early retirement, which runs from roughly the day you retire and continues for about 5-7 years. Mid-stage retirement is the next phase, which we’ll assume falls between years 8 and 14. Finally, late-stage retirement runs from there until the end of your life. These numbers aren’t meant to be exact, but rather an idea of timelines. Over the next few weeks, I’ll break down each of these 4 phases of retirement by tackling one phase each week.
Pre-retirement or the years leading up to retirement can start as early as the time you seriously begin to think about and plan for retirement. Things to consider during this phase include
- Maximizing your retirement plan contributions. These are the years that you want to save as much money as possible, leading up to your last working day. If you intend to retire early, you might want to consider Roth 401 (k)/IRA contributions if you intend to stop working before age 59 ½. Yes, there are ways to avoid the 10% penalty for distributions before age 59 ½, but Roth contributions tend to give you the most flexibility.
- Focus on expenses. Pre-retirement is the time you really want to get a handle on what your expenses really are. I would guess that fewer than 50% of the retirees I meet with truly know what their monthly expenses really are. Getting out of debt, cutting expenses, etc. helps you understand exactly how much money you are going to need once you get to retirement. Knowing what you will be spending makes it much easier to back into the amount of how much money you will have to have saved in order to live comfortably in retirement.
- Get an idea of what you intend to do once you retire. One of the most difficult questions for me to answer is how much income you need to have to “live comfortably”. The answer to that question is wholly dependent on what you intend to do with your time in retirement. Do you intend to travel the world? Buy a 2nd house? Take up expensive hobbies? All of these are factors in the amount of money you will need to live comfortably during retirement.
- Where will you live in retirement? Will you relocate to Florida? Move closer to the grandkids? There are significant considerations related to relocation, including state taxation, insurance costs, real estate tax rates, ease of air travel, etc.
Clearly, there are quite a few factors to consider before you even get to retirement. The sooner you start planning, the easier the transition can be and the more accurate your assumptions may be. To learn more about how we help with retirement planning, register for our Enjoyable Retirement SolutionTM seminar on May 12th by visiting https://www.reichassetmanagement.com/events.
Frequently Asked Questions About Pre-Retirement
1. Why is it important to break retirement into different phases?
Retirement isn’t a single stage—it can last 20–30+ years and includes very different financial needs over time. By breaking it into phases (pre-, early, mid-, and late retirement), you can plan more accurately for income, spending, healthcare, and lifestyle changes at each stage.
2. When should I start planning for retirement?
Ideally, you should begin serious planning during the pre-retirement phase, about 5 years before your target retirement date. However, the earlier you start, the more flexibility and confidence you’ll have in making adjustments along the way.
3. What are the most important things to focus on before retiring?
Key priorities during pre-retirement include maximizing savings, understanding your true monthly expenses, eliminating debt, and clearly defining what you want your retirement lifestyle to look like. These factors directly impact how much income you’ll need.
4. How do I know how much money I’ll need in retirement?
There’s no one-size-fits-all answer. Your retirement income needs depend on your lifestyle goals—such as travel, housing, hobbies, and location. The clearer your vision for retirement, the easier it is to estimate and plan for the right amount.