The Go-Go, Slow-Go, and No-Go Years of Retirement

Retirement is one of the biggest changes you'll ever make in your life and to be successful, you have to consider the financial and non-financial issues involved.

Michael Stein, author of The Prosperous Retirement stresses that retirements have changed in three ways: They last longer, they are more affluent, and people expect more out of them.

By understanding how to plan for today's retirement lifestyle, you'll avoid running out of money before you run out of time. In the past, analysis of retirement needs was based on using a constant growth and inflation rate. This assumption is flawed because in the real world, investors will never receive a constant rate of return year after year. So as you analyze your retirement needs, look at a wide variety of scenarios to assess the likelihood of meeting your goals.

It's also important to review the impact of making portfolio withdrawals when your investment returns are less than was projected. The future value of your portfolio can be significantly impacted, especially if lower returns occur during your early years of retirement.

Stein says that when doing a retirement analysis/projection, it's important to remember that retirement consists of three phases: the active, the passive, and the final. Each phase can be distinguished by different financial needs and requirements.

The active phase: This is characterized by people retiring earlier, often in the prime of life, with full health and vigor.

People generally want to continue the same life-style after retirement that they previously enjoyed. The active phase retirement budget, therefore, tends to equal the pre-retirement budget, if the retiree can afford it. This challenges conventional wisdom and the rule of thumb that in retirement you will need only 70 to 80 percent of what you now spend.

The passive phase: This usually begins when the retiree reaches the mid-70s, and it lasts for about 10 years. According to Stein, "The go-go phase of retirement gives way to the slow-go phase."

During this time, retirees gradually grow weary of long vacations, become less enthusiastic about dealing with the airports, and in general let the pace of life slow down. The retirement budget typically declines by 20-30 percent, but inflation could mask that decline.

The final phase: This commences when the "slow-go" gives way to the "no-go". Failing health makes medical treatment and nursing care the defining characteristics of this phase. The budget will remain similar to the passive phase budget.
Viewing retirement as three distinct phases requires a new strategy for the already complicated process of retirement planning. Add to this other issues that are often overlooked such as providing financial support for children, aging parents or other relatives and you end up with a wide range of options that should be reviewed.

All of these issues underscore the need to take a comprehensive approach to retirement planning, beyond simple number crunching.

Take the time to think about the lifestyle you want, and plan accordingly. Enjoy the active years, smile through the passive years and plan for the reality of the later years.