Retirement: The Four Stages
Even with all the information on the Web available, it's difficult to figure out how much, exactly, one needs to retire. This short article discusses a new approach to how retirement might be considered as different phases. NOTE: This is not a "how to calculate what you need" article! I do believe it is useful as it discusses what I've observed in the elderly people I know - travel expenses are heaviest in the first stage, medical expenses are heaviest in the later stages.
The New Math of Retirement
Financial advice you've gotten in the past may have been misguided and miscalculated. Here's how to make sure you've got enough saved up.
By Linda Stern : Newsweek Web Exclusive, May 3, 2010
(Excerpt) "ThereÂs one key fact of life that most retirement planning advice gets wrong: the way people actually live and spend when they retire. Put simply, most retirement calculators and planners aim for decades of level spending, but most people reduce their spending as they move through retirement. ThatÂs a disconnect that can significantly skew the results of the typical planning exercise, says a recent study from the Society of Actuaries and the Actuarial Foundation. It could lead workers to take greater investment risks, or be overly frugal during their final years of work or their first active years of retirement.
When workers retire, their budget often goes through four phases: (1) early retirement, when travel, home improvement, hobbies, and new wardrobes can raise expenses beyond workday levels; (2) mid-retirement, when people (and their spending) typically slow down; and (3) late retirement, when spending and activity slows even more; and (4) end of life, when spending for health care and personal assistance can use up whatÂs left of a retirement kitty. But the typical retirement calculator calculates first-year spending based on a workerÂs last year of salary, and then simply adjusts that estimate up every year by the inflation rate. "Replacement rates may make sense as an analytical tool when peoplesÂ income and expenses are stable over time. However, generally neither is the case," the study says."
Here is a link that might be useful: Newsweek: Full Article