Three Stages of Retirement:

In his book "The Prosperous Retirement, Guide to the New Reality", Michael Stein, CFP, describes three stages of retirement:

1. Active retirement — the 'Go-Go' stage

"These activities also may result in expenditures that are well above the budget on which the retiree lived before retirement. If this seems surprising, reflect on how much you spend while traveling on vacation versus what you spend when you are at home in a more normal routine. After a while, reality generally takes over, things settle down to a less frenetic pace, and an active, satisfying, and thoroughly enjoyable stage of retirement begins. The budget during this active stage of retirement generally is equal to the pre-retirement budget; in fact, that is:

Stein's First Rule of Retirement - The active-stage retirement budget tends to equal the pre-retirement budget, if the retiree can afford it.

People generally want to continue the same life-style after retirement that they enjoyed before retirement. This lifestyle will cost about the same amount during retirement that it did before retirement. I know that this flies in the face of conventional wisdom, but it is true. There will be more discussion of why this is true in Chapter 3. During the years of the active stage, inflation will continue to act on the budget and drive it just as it did before retirement, but then a change begins to happen.

2. Passive retirement — the 'Slow-Go' stage

The "go-go" stage of retirement gives way to the "slow-go" stage. After some years of active retirement, people begin to grow weary of long vacations, feel less than enthusiastic about running through airports and train stations, grow tired of living out of suitcases on trips, and, in general, decide to let the pace of their lives slow down. This is the beginning of the passive stage of retirement.

The transition from active retirement to passive retirement generally begins when retirees reach the mid-70s and it lasts for about 10 years. There is no social science study to verify this observation, but watching hundreds of retirements has led me to this conclusion. Sometimes people feel like traveling and being active well into their 80s. Sometimes deteriorating health causes people to slow down before they reach their 70s.

Typically most people are able to be about as active as they want until their 70s, then, inexorably, old age creeps up on us and we slip quietly, without trauma, into the passive retirement stage. These older people take fewer and fewer trips and then, ultimately, no trips. They buy no new cars, no new houses. In fact, this may be the time that people downsize their homes, purchase fewer new clothes, and allow a quieter and less expensive lifestyle to take over. During the years of the passive stage, the budget typically declines by 20 to 30%, but the decline may be masked by the upward push of inflation.

3. Final retirement — the 'No-Go' stage

Finally, the quiet pleasures give way to the unpleasant realities of the third stage of retirement, the final stage. The "slow-go" stage gives way to the "no-go" stage. Failing health makes medical treatment and nursing care the defining characteristics. This stage may be prolonged or it may be blessedly brief. Managing this uncertainty is one of the principal challenges of The Prosperous Retirement and is discussed in more detail in Chapter 9."