Are You Planning for Changing Income Needs in Retirement? You Should Be.


At many phases of life, it’s smart to have a budget to guide your spending. A good budget can have you meet your financial obligations and help with financial goals — all while spending within your means. Budgets can be useful for retirement, too.

Well before you retire, it makes sense to plan for what your spending needs will be. It can help you determine just how much you need to save for retirement. Don’t just assume that your spending will look the same throughout your retirement, either. For most of us, it will likely change considerably over time.

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Stages of retirement

We tend to think of retirement as just that: retirement. But there are some fairly distinct stages to it, just as there are often stages of a career. One cute but rather accurate way of thinking about it is that there will be a go-go period, followed by a slow-go period, and then a no-go period.

The go-go period are your early years of retirement, when you’ll likely be healthier than you will be later and more active — traveling, golfing, hiking, gardening, and so on.

The slow-go period is next, when you’ll likely cut down or cease fairly strenuous activities, and health issues might pop up or worsen. The no-go period is last, when you may be quite limited in where you go and what you do.

Clearly, your spending habits are not likely to remain anywhere near constant. As most of us age, we will spend more on some expenses and less on others. While each of us has different health conditions, abilities, interests, etc., here’s a general idea of what you might expect:

You’ll spend less or nothing on…

As you begin your retirement, you will probably not have to spend any money on commuting to work — so, fewer tolls paid, less gas purchased, lower car insurance premiums, and more. Your household might even be able to get by with one vehicle fewer, which can save a lot, too. 

You won’t need to buy and maintain a professional wardrobe, either, and if you used to eat out a lot while working, that habit might end, too.

Many retirees live in towns that offer breaks on property taxes for seniors, so that tax bill might shrink. Your income tax bill could shrink, too, if you’re living on less income in retirement than you did before.

If you’ve been in your home a long time, you could be mortgage-free, which can also keep your expenses down. Even if you aren’t, you might consider aiming to pay off as much of your mortgage as possible before retiring, if having minimal debt during your fixed-income years appeals to you. (The higher your mortgage interest rate, the more appealing it should be to have it paid off.)

Lastly, there are senior discounts available for all kinds of expenses: restaurants, train rides, national park admissions, hotels, drugstores, retailers, and car rentals. The more you seek them out, the more you could save.

You’ll spend more on…

It’s worth crossing off lots of bucket-list items well before you retire, but many people tackle these lists with gusto in retirement. That can mean a lot of traveling, entailing airfares, hotel costs, tours, and restaurants. It might also mean pursuing a private-pilot license, equestrian lessons, mastering a musical instrument, learning to sail, or buying a vacation home. These kinds of things can have significant costs.

If you enjoy shopping, you could be spending more on it in retirement, since you’ll have more time to shop. Healthcare costs will often keep rising, and could even be higher than you’re used to early in retirement.

Your spending will change on…

As you age, you’ll likely spend less on recreation and travel, and more on healthcare. Ideally, your children will be grown and self-sufficient, so you’ll spend less on them. Your overall spending may be significantly less than in previous years, as long as your health is reasonably good and you have good health insurance.

On the other hand, if you are no longer able to (or no longer want to) clean your home and maintain your yard, you could be hiring more help for all kinds of things in your later retirement.

As you plan for retirement spending needs, consider where you’re most flexible. That’s because, depending on where your retirement income comes from, you might have some lean years and some fat years. An annuity might pay you according to how the stock market performs, for example — or you won’t want to draw on a particular account when the market is down. (It’s smart to not keep money you’ll need within a few years in stocks.)

Lastly, keep inflation in mind, because over a long period, such as 30 years, it can greatly shrink the purchasing power of your income streams.



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