The Four Stages of Retirement

The Retirement Journey

A study carried out by Edward Jones, a large US financial services company, and Age Wave, a thought-leader on issues relating to an aging population, has identified four stages of the retirement journey. Although it is a US study, no doubt the results will be similar in the UK and I thought I would share some of my experiences of helping clients on their retirement journey and how it might apply to these four stages.

Stage 1 – Anticipation (typically up to 10 years before retirement)

For me, this is the most crucial stage for a successful retirement and where lifestyle financial planning can play a crucial role.

Taking stock of your current financial position and identifying where you want to get to is so important in the years leading up to retirement. For example, do you need to increase your level of savings now in order to accumulate sufficient capital to draw on later?

It is also important to begin the process of articulating your desired lifestyle and whether this might require any capital expenditure in the future, for example, to purchase a holiday home, a yacht or taking an extended holiday.

If you are a business owner, in this stage, you might be beginning the process of succession planning or possible sale.

During this period, clients often consider how best to transition into retirement and whether this is going to involve a gradual phasing into retirement or a clean break from full-time employment.

When we work with clients, we always try and involve partners and spouses so that retirement aims remain compatible and to identify whether there needs to be any compromises.

Stage 2 – Liberation / Disorientation (0 – 2 years after retirement)

In my experience, those who have prepared well, both financially and, to a degree, psychologically, tend to feel most positive towards retirement.

It can take a while to work out what expenditure in retirement looks like and to come to terms with the fact that your earnings potential is diminished and you are reliant on your accrued capital.

The Edward Jones/ Age Wave study points out that around 48% of those surveyed were worried about outliving their money which highlights the importance of having a comprehensive cashflow forecast to demonstrate whether you will remain financially comfortable throughout retirement.

The study also found that 61% of people in this stage said that their ideal approach to balancing work and leisure in retirement involves working in some capacity.

Stage 3 – Reinvention (3 – 14 years into retirement)

According to the Edward Jones/ Age Wave study, in the US, the favourite activities of people in this stage of retirement include:

Spending more time with family and friends.
Taking steps to improve health.
Travelling and/ or taking holidays.
Engaging in creative projects and hobbies.
Working.

When we create financial plans for our clients, we often label this stage of retirement as, ‘active retirement’, the time when clients make the memories that they can look back on in later life. As such, in our financial plans, we often assume a higher level of expenditure during this active phase.

Stage 4 – Reflection / Resolution (15 plus years after retirement)

In the US, the Edward Jones/ Age Wave study shows that people are still active in this stage of retirement but, as they get older, they do tend to downshift in favour of more rest and relaxation and spending quality time with friends and family.

The study also highlights that in their survey, 72% of women age 85 or over are widows whereas only 36% of men of the same age are widowers. The report suggests that having close family and friends around at this time is extremely important in maintaining well-being.

For many of our clients we may have implemented some estate planning strategies by the time they have reached this stage, however it is generally during this phase that clients focus on what legacy they wish to leave and ways they wish to help the next generation.

In my experience, it is very difficult to generalise how clients approach this phase of their lives. I remember one client telling me she hopes to be going clubbing well into her eighties!

Conclusion

The findings from the Edward Jones/ Age Wave study are certainly interesting and reinforce a number of key points about retirement planning including:

Retirement is likely to last a relatively long time which is great news if you are properly prepared.
Having sufficient financial resources and a purpose often leads to a successful retirement.
It might take a couple of years or more to feel comfortable in retirement.
Minimising the lifespan / healthspan gap means you can enjoy retirement for longer.
Ultimately, we only have one life so identifying our desired lifestyle and planning to achieve this is crucial.

At the end of the day, we don’t want to look back and regret the things we didn’t do. There seems to me little point in having millions in your bank account on your death but not having enjoyed the holiday of a lifetime you always promised yourself!

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If you wish to explore your retirement in more detail, please do get in touch.