The 3 key stages of retiring, and why understanding them is vital to your financial strategy

24/08/2022

Once you’ve made a plan for retirement, it can be easy to fall into the trap of thinking that all the work is done.

After all, you’ve set goals for the future and created a plan for your finances that should allow you to reach them. So, as soon as you arrive at retirement and implement that plan, you can sit back and relax, safely living on your wealth for the rest of your life.

While having a plan for the transition into post-work life is certainly a sensible strategy, that plan also needs to take your spending in retirement into account.

This is because of the way your spending will change over the course of your retirement, particularly at three key stages.

When you work with us at Douglas White, you can be assured that we have taken these stages into account while helping you create your retirement strategy.

Even so, here’s a quick refresher on the three key stages of retiring that we consider when creating that plan for you.

Equally, if you know someone else who is approaching retirement, discover why they need to plan for each stage, and how we at Douglas White could help.

These stages show how your spending changes throughout retirement

The three key stages to retirement revolve around the way your spending habits and income needs change as you get older.

Rather than decline from the day you retire, the graph below shows how your income needs initially fall, before then rising again in later life:

Scottish Widows via FTAdviser

Owing to its shape, you may also have heard this graph referred to as the “retirement smile”.

This can be divided into three stages, often referred to as the:

  • “Go-go” years
  • “Go-slow” years
  • “No-go” years.

Find out more about each of these stages below.

Stage one: the “go-go” years

Stage one, also known as the “go-go” years, is where you achieve all those future goals you had laid out for your retirement.

Arriving at retirement, no matter how old you are, you may have many things you want to do. Whether that’s travelling the world, going on cruises, or simply spending time with your family and friends, these are the years where you can start to spend the money you diligently saved and invested over the years.

Your goals will have been the first thing we asked you about at Douglas White, as they are crucial in defining how much income you require.

While this is unknown before you start spending, your lifestyle will have a tangible cost, so we use these targets to create an approximation of how much income you’ll need in this first stage.

Stage two: the “go-slow” years

The “go-slow” years often occur as you approach your mid- to late-70s. At this point, you might find that your income needs decline.

Sometimes, this happens out of choice. It could simply be the case that you you’ve done what you wanted to do in the first stage, and you’re now ready to settle into a quieter retirement. As part of this, you may have transferred some of your wealth to the next generation of your family, either out of choice or with an eye on Inheritance Tax (IHT).

Alternatively, it may be desire. While you may not be able to envisage it now, you might arrive at an age where you feel that you’ve had enough of chasing your goals, and you simply can’t be bothered any more.

The other slightly more worrying reason is need. At this stage, you might realise that you’ve spent a bit faster than you intended, and you now have less money available than you thought you were going to.

Whatever the reason, your spending needs may well reduce, meaning you need a little less income to live on than you did previously.

Stage three: the “no-go” years

Arguably, stage three is where the biggest misconception around retirement income lies.

Many people erroneously think that their spending needs decline over time. However, in this third stage, it’s actually likely that your spending needs will rise instead.

There are many reasons this is the case, but a common example is the need to pay people to help you around the home. Whether that’s someone to do the shopping every week or the gardening once a month, this is a cost you didn’t have before but suddenly will need to meet as you become less able to do those things yourself.

One element people often worry about is the cost of care, which can quickly climb into tens of thousands of pounds for just one year.

It’s worth bearing in mind that while these costs are high, only a small percentage of people require care. Indeed, according to charity care provider Methodist Homes, just 4% of over-65s lived in a care home in 2016. This increased for over-85s, but only up to 15%.

Furthermore, even if you do require care, the average life expectancy for individuals in residential care homes is 24 months, falling to 12 months for those in nursing homes. So, you’re unlikely to be in care for multiple years.

That means, while it can be sensible to include provisions for your care in your financial plan, it may not be as pressing a concern as it might seem.

An additional element that we often talk about at Douglas White is that this increase doesn’t have to be negative. Instead, it might involve you using your money to make the most of this period.

For example, you may have travelled throughout the first and second stages but thought you had to stop in your older age.

But instead, you could use the money you have to hand to allow you to continue doing what you most love.

The cost of business class seats on a plane or a suite on a cruise ship might have seemed like a decadent luxury before. But now, if paying for these things allows you to keep doing what you want, there’s no harm in increasing your expenditure for this – providing you can afford to do so.

Whatever it is that you intend to spend on, your financial plan should factor this in, ensuring that you have enough to afford what you want or need.

Work with us

Understanding these three stages is vital to creating your successful retirement plan.

When you work with us at Douglas White, we’ll always factor these in so that you can live your desired retirement, safe in the knowledge that you’ll have enough to live on throughout.

Want to check in on your financial plan? Email info@douglaswhiteltd.com or call 0151 345 6828 to speak to us today.

Please do also feel free to share our details with any friends, family, or colleagues who may benefit from working with us, too. We’d be more than happy to speak to them.

Please note

A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits.

The Financial Conduct Authority does not regulate estate planning, tax planning or will writing.