The Three Phases of Retirement

Most advice on how much one needs to save seems to rest on a rather one-dimensional view of retirement. When most of us contemplate retirement, we picture ourselves more or less as we are now, just a little older and greyer, and maybe a little stiffer, but otherwise the same. In retirement, we are still up for that exotic trip, a night out on the town, or a golf game. That may very well be true, but only in the first phase of retirement. We don't like to think about it, but we will likely go through phases when we will be less healthy. By one estimate,1 the disability-free life expectancy of Canadians is 68.6 years, meaning we could have more than a decade of retired life when we will have to cope with health issues.

A Society of Actuaries survey of Americans in the pre-retirement stage shows that about 30 per cent do little or no retirement planning. Of those who do, nearly two out of three focus their planning only on Phase 1 of retirement. As we will see below, they are likely to overstate their financial needs in their later retirement years. You need to know what to expect in all phases of retirement and build that knowledge into your retirement planning.

Phase 1

Not surprisingly, Phase 1 is the most active phase of retirement and probably very much the way you pictured retirement, assuming you are fortunate enough to avoid serious health issues. During this phase, your physical and mental abilities will be similar to what they were just before ...

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