The three stages of retirement

The Old Age Pension was introduced in 1908, and was paid to people over the age of 70. At the time, only in one in four people reached the age of 70, and their life expectancy was about 9 years.

Since then, the concept of retirement has changed beyond recognition, but public policy and the financial services industry still treats “retirement” as if it is a single phase of life.

Fast forward to 1998, and the concept of the “three phases of retirement” was created by Michael Stein, in his book “The Prosperous Retirement”. Some have since tried to claim that there are more phases, but Stein’s three phases are reflected in my anecdotal experience with clients.

Stein described the phases as “Go-Go”, “Slow-Go” and “No-Go” – as well as being observant, he had an ear for a good turn of phrase!

The Go-Go Years

During the earliest years of retirement, most people tend to be more active because they’re younger and in better health. Spending is typically high during this phase of retirement because retirees are busy enjoying hobbies they didn’t have time to pursue when they were still working. It’s a time when people are able to travel, learn a new skill, and strengthen family bonds.

The Slow-Go Years

During this middle phase of retirement, people may not be so keen on travel, which can be wearing, nor may they feel like pursuing activities that require a high degree of energy. Retirees in the Slow-Go phase often trade in travel, cycling and tango lessons for coffee and time at home.

The No-Go Years

Today’s retirees are living longer than any before. In this phase, there will be a further slowdown in activity, usually with a reduction in social activities and the ability to get around. In this phase, retirees have to adjust to their ability to live independently. Some can age in their own homes, while others may need to transition to an assisted living facility or nursing home.

Catalysts for Change

There are generally two factors which lead to retirees moving from one phase to the next:

  • Physical Health. Worsening health is usually the factor which leads retirees to transition from one phase to the next. The changes don’t need to be significant and they only need to affect one partner in a couple to move both on to the next phase.
  • Energy and Resilience. Declining motivation and mental resilience can also have an impact. It’s not uncommon for travel enthusiasts to tell us that “we just don’t fancy long-haul any more” as the effort of travelling to the other side of the world can be draining.

Financial Impact of the Three Phases

The movement from one phase to the next is significant. It can be seen in average patterns of expenditure. But it is more clearly observable when we look at the expenditure patterns of individual clients.

The average pattern shows that spending in the first phase is high, and, in many cases, higher than it was pre-retirement. It then declines in the second phase. In the third phase, it tends to decline further… unless there is a need for an extended period of care, in which case it rises again.

The decline in average expenditure in the early years is reflected in the lives of our clients. But the decline in expenditure can happen in steps, when a deterioration in physical health is the catalyst for the change from one phase to the next.

We’ve also noticed that the change to our clients’ expenditure depends upon how large a proportion of their outgoings is made up of essential or unavoidable expenditure (as opposed to discretionary expenditure). When essential expenditure is a high proportion, the decline in spending tends to be much lower. This tells us that it is discretionary expenditure that is most affected by the transition from one phase to the next.

The Impact on Your Financial Plan

This is one more reason why it’s important to analyse and estimate your expenditure in some detail, working out what is unavoidable and what is discretionary. If I was only allowed to give you one retirement tip, this would be it!

It’s also important to work out if you are a “front-loader” or “back-loader” as far as retirement spending is concerned. Wade Pfau (one of the Gods of Retirement Planning) considers this to be a key personality trait for retirees. “Front loaders” prefer to spend their money and cross off items off their bucket list as soon as they can, in the knowledge that they might have to make cutbacks later on. “Back loaders” prefer to be cautious with their spending in the early years, in the hope that they will be able to splash out later, and they tend to be happier in the knowledge that they are less likely to have to make dramatic changes to their living arrangements in later life due to financial constraints.

It certainly demonstrates that the assumption that all of your spending will increase in line with inflation throughout retirement is wrong. It’s not a bad idea to assume that essential spending will be linked to inflation, but there are more accurate assumptions for discretionary spending.

Retirement isn’t one homogenous stage of life – there are three phases of retirement and everybody moves from one phase to the next at different speeds and at different times.

Philip Wise |

Managing Director and Chartered Financial Planner

This guide is for information purposes and does not constitute financial advice, which should be based on your individual circumstances.

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