Common phases of retirement spending

retirement spending

Across the globe, different interpretations exist regarding the common phases of retirement spending. It’s true what they say – when failing to prepare, you are preparing to fail. So, we’ve shared our thoughts on how to plan and budget for your retirement income.

First, it’s important to recognise how retirement has changed when compared to 60 years ago. Back in 1961, the average lifespan for a man was 68 and 74 for a woman (Office of National Statistics). Men could retire at 65 years and women at age 60.

By 2021, the average lifespan for a man reached 78 years and 82 for a woman. The state pension age is currently 66 – 67 years. Therefore, your pensions and savings need to last a lot longer than in the past. Many factors, such as ill health and other challenges, could also affect your spending patterns during retirement.

Spending patterns in retirement

Below is our interpretation of the typical spending phases of retirement to give you some clarity on what to expect:

Active phase – Explorers
Early retirement is the most active phase, where you may want to explore your newfound freedom from the constraints of employment. People are more likely to be on the go, often choosing to travel or relocate to sunnier climes for part of the year. Hobbies, eating out and socialising costs could increase too. During this phase, you may have greater energy levels and better health, resulting in more day-to-day spending.

Settling phase – Nesters

Without generalising too much – after all, there are plenty of adventurous septuagenarians – this phase sees people slowing down a little. You may still be mobile, but you are likely to have reduced certain activities, for example, less long-haul travel. Your energy levels may be dropping, and some people may see an increase in health conditions.

Later years phase – Reflectors
At this stage, you’re unlikely to be going out very often, due to reduced mobility or frailty. Your everyday spending may be very minimal, but you might need health or social care support. You may have lost your spouse or partner, and you could be relying on support from family or friends. At this stage of your life, it’s essential to have enough wealth.

It’s important to note there are no precise time frames for the above phases, especially as there are active people well into their 80s. But it offers a guide to help you understand what might be ahead so you can prepare your spending across all phases.

Key steps for planning your retirement

Below are some questions to answer before you retire:

  • Do you have enough income to last you throughout your retirement?
  • Will you have enough funds to cover long-term care fees, if required?
  • When did you last review your savings and investment strategy?
  • Have you checked your pension forecast?
  • Do you have a financial plan in place?

When can you retire?

The answers to the above section will determine your responses to the following questions:

  • What do you want to do when you retire? Think about any big spends, such as luxury holidays.
  • If you own a business, do you have any succession plans? Consider how you plan to exit from the company or whether you will sell the business.
  • Do you have any dependents? This could include adult children or vulnerable people either living with you or depending on you.
  • What age will you be able to drawdown from your private pension? Until April 2028, you can access your pension at 55 years, but after this date the age rises to 57.
  • Are you thinking of semi-retiring? This can provide a useful extra income stream for your retirement spend.

Retirement planning in Nottingham and Lincoln

Planning ahead for the different phases of your retirement will help you put in place a financial buffer, so you can enjoy your later years. Whether you plan to be active or slow down, a realistic financial plan will help you plan your retirement spend. You can factor in large outgoings, such as luxury holidays and care fees.

Our financial planning teams in Nottingham and Lincoln can help you with your retirement planning. We will produce a Lifetime Wealth Forecast to help you understand how far your current pensions, savings and investments will support you when you retire. Our aim is to help you achieve your aims and aspirations, so you can enjoy a comfortable or luxurious retirement.

For more information on retirement spending, read our recent blog How much do I need to retire?

If you would like advice on how to plan your retirement spend, get in touch to speak to our financial planners.