The 4 Financial Stages After 65 Nobody Plans For: How To Prepare for Each One

Retirement doesn’t unfold all at once, so your finances shouldn’t be planned that way either. Life after 65 breaks into distinct stages, each with its own costs, risks and priorities.

Here are the four financial stages of retirement and what to do to be ready for them.

For You: Owning vs. Renting: See Which Is More Affordable in America’s Top 50 Retirement Destinations

Start Saving:9 Subtly Genius Things All Wealthy People Do With Their Money — That You Should Do, Too

Stage 1: The Transitional Phase

The first phase of retirement often brings a surge in spending as retirees adjust to a new routine and finally check off long-delayed goals like travel.

The key risks during this financial phase are overspending too early and underestimating longevity. To avoid these risks, it’s important to set a realistic budget and determine how you will create income to cover expenses.

“Have a true understanding of what your means are,” said Marcus Riley, aging expert and co-author of “Your Aging Advantage.” “If we are planning to retire from work and not have that wage-based income any longer, well, what’s our income in place of that?”

Riley also recommends keeping funds dedicated to travel separately to avoid tapping into your retirement funds.

Stage 2: Rising Costs in Active Retirement

During Stage 2, you might consider making more changes to your lifestyle.

“We start to look at changes in our needs and requirements — we might be looking at home modifications, we might be looking at some health services, looking at things that we want more out of convenience to support our independence,” Riley said.

The biggest financial risks at this stage are rising healthcare costs and unexpected expenses. “The rise in health and support costs — perhaps we haven’t planned for those well enough in advance, so they can become challenging if they emerge suddenly or if we haven’t built contingencies in for those financial requirements,” Riley said.

Stage 3: The Elder Care Stage

In Stage 3 of retirement, you may require further support and care — which often involves additional expenses.

“Costs could relate to a move to different accommodation and a higher level of care and support services,” Riley said.

The costs that can catch you off-guard include long-term care costs and underfunded care coverage. Riley recommends working with a financial professional to consider options for paying for these expenses well before you need them. “Some people might have insurance, some may not, specifically in terms of long-term care and potentially looking at accommodation that’s appropriate for us,” he said. “There are different products and models, so it’s an opportunity for us to take advice about that.

“Understanding what the different options are and how they can be funded and potentially what we might need to fund ourselves … there are avenues of obtaining that advice which can be really valuable,” Riley continued.

Stage 4: Estate and Legacy Planning

The final stage entails legacy planning — structuring your assets and finances so that they are distributed according to your wishes. What can derail plans during this stage are inadequate estate structures and making one-size-fits-all assumptions.

“Everyone’s circumstances are individual,” Riley said. “A risk is often that our neighbor, our friend, did XYZ, but their circumstances — financially and otherwise — are particular to them. We need to really understand what our own circumstances are.”

Why Retirement Planning Needs To Evolve Over Time

As we live longer, it’s more important than ever to plan for multiple stages of retirement.

“Our increased longevity doesn’t just simply mean an extended retirement — it creates new opportunities for us, new stages of life that we can really plan for and make the most out of, but they do require new financial strategies too,” Riley said.

“Planning is really the secret to us maximizing our control … not just in relation to our finances, but certainly when we think about our money and future requirements,” he continued.

It’s necessary to take a holistic view when planning for the different stages.

“Don’t plan financially in isolation,” Riley said. “Consider the way we want to live, our health and social and environmental factors.”

Retirement planning should be about preparing for how your needs will evolve over time.

This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.

More From MoneyLion: