Last week, we touched on things to consider in the years leading up to retirement. In my opinion, that stage is the most important stage because it sets up what your retirement may look like. This week, I want to cover the next phase, which is the early part of your retirement. To refresh your memory, this can include the first 5-7 years of retirement. Early-stage retirement frequently catches retirees by surprise if they have not planned for it. Why? Simply because of the overwhelming decisions that have to be made if you didn’t make them during the pre-retirement phase. This again includes what will you do with your time? Where will you live? What are your expenses? All of those considerations, plus the following, need to be decided and managed in the early stage of retirement.
- Added expenses. The early stage of retirement is like the honeymoon phase of a relationship. Everything is new and exciting. You are no longer constrained by a work schedule, and every day is Saturday. While this is certainly the exciting part, it doesn’t come without drawbacks. Being able to go out to dinner any night you want because you don’t have to wake up early for work tomorrow may mean that you are spending far more than ever before on entertainment expenses. The same holds true for travel. With no more 2 weeks a year vacation time, perhaps your trips last a little longer and happen a little more frequently. All of this new found freedom can add significant expenses to your intended budget. We suggest for those planning on enjoying this type of lifestyle in the early stage of retirement that you plan on spending 10-20% more than you previously did before you retired. This is counter to much of the advice out there that suggests that you only need 60-80% of your pre-retirement income once you retire. I’ve been a specialist in retirement for 27 years now and I can tell you that needing such a small amount of income rarely ever happens.
- To say that the world of Medicare planning is confusing is an understatement. This is why I strongly suggest meeting with a Medicare expert when trying to decide what plans to pick. Medicare Advantage plans may save you money now but could become more costly later in life at a time when you use them the most. By contrast, supplemental plans can cost more today but may save you a lot in the latter stages of retirement. If you don’t know the difference, then you really need to talk with an expert. Medical insurance and healthcare expenses can ultimately end up being some of your largest expenses in retirement.
- Your health. We often have grand plans about what we intend to do once we retire, but sadly, our bodies don’t always go along with those plans. Staying in shape and focusing on your health, while important at every stage of life, becomes critical in retirement if you intend to live an active life when you retire. The biggest factor I see in people’s retirement dreams not coming to fruition is that their health often prevents them from living out their retirement dreams.
Planning properly for the added expenses in the early years of retirement can go a long way toward making your retirement as enjoyable as possible. Failure to do so can lead to less money to go around and, therefore, tradeoffs in what you want to do. To me, I don’t want to have to pick and choose what I get to do in retirement. My idea of an enjoyable retirement is to be able to do whatever I want, whenever I want, as often as I want. Whatever your ideal retirement looks like, plan properly to make it a reality.
Frequently Asked Questions About Early-Stage Retirement
1. What happens during the early years of retirement?
The first 5–7 years of retirement are often the most active and exciting. Many retirees travel more, dine out more, and pursue long-awaited goals—making this a high-spending phase.
2. Will my expenses go down when I retire?
Not necessarily. In fact, many retirees spend 10–20% more in the early years due to increased leisure activities, travel, and lifestyle changes.
3. How does health impact my retirement plans?
Your health plays a major role in your ability to enjoy retirement. Staying active and prioritizing wellness increases the likelihood that you can fully experience the lifestyle you’ve planned for.