The combined challenges of increasing life expectancy and rising health-care costs have complicated the key task of retirement planning: to ensure that retirees do not outlive their savings.

While long-term planning is still the critical step to success, investors should also think about the different type of expenses that are typically incurred early in retirement. These can include travel, family events, gifting, and charitable giving. These discretionary, sometimes one-time expenses, require special planning attention.

After all, not every year in retirement is the same, and there will likely be expenses to fulfill dreams of a lifetime that occur. Retirees will need financial flexibility to enjoy memorable events while still keeping long-term savings intact.

Stages of retirement

In his book about retirement, author and CFP® Michael Stein illustrated three stages of retirement as “Go-Go, Slow-Go, and No-Go.” The Go-Go stage includes the early retirement years when retirees are very active and spend more time and money on family and travel. As retirees maintain better health, this period can last for a number of years. In the second phase, Slow-Go, expenses begin to decline as retirees become less active. They may be looking to downsize their living arrangements and expenses. The third stage, or No-Go, represents the latter years when retirees spend more conservatively and may need to devote more resources to medical care.

Prepare with a two-pronged approach

In the first phase of retirement, people want to enjoy the goals that motivated them to work hard, and they need to be prepared to have funds for discretionary spending. It can be challenging to calculate those expenses. Still, planning for discretionary spending should not be at the expense of essential items or future income needs.

The traditional advice of creating one stream of income to meet basic needs and then using what is left over for discretionary spending does not always work. A commentary in the Journal of Financial Planning suggests creating two portfolios for retirement: a core portfolio for essential expenses that cover income and regular distributions for the long term, and a second, discretionary portfolio for one-time or non-essential expenses like travel or family events. Early in retirement, it’s especially important to consider using liquid assets, invested conservatively, for discretionary funds. A conservative approach may reduce the risk of a negative impact from a market downturn.

With separate portfolios, there is a clear boundary that investors can rely on for guidance to manage their spending.

How to discuss planning topics

  • Prioritize time-sensitive issues. Early retirement may be the last opportunity for retirees to purchase affordable, long-term insurance. It is also an opportune time to evaluate estate planning decisions, and to update wills and trusts.
  • Remind retirees that it’s critical to monitor both the present and future. While enjoying family and vacations in the early years, continue to prepare and position finances for the future.

Preparing for two types of spending in retirement is important to developing a solid plan. Advisors can help their clients enjoy the retirement they’ve earned, while also making sure they’re financially secure for the future.


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