Go-Go or Go-Slow in Retirement?

Q - I've heard there are "phases" in retirement, sometimes referred to as Go-Go, Go-Slow, and No-Go, which impact spending. How would one estimate a budget for each of these phases?

A - You're right, there are phases. There could also be, part-time work for 5 or 10 years into retirement which has both costs and income to consider. Or, adult children or parents care to consider. The ones you mention would affect travel expenses, car expenses, dining out, and entertainment. As you think through the things you'll want to do immediately after retirement, will those expenses continue year after year? A golf club membership might provide value for a few years, but there comes a point when being a member may not provide the value based on how much it gets used. Take your initial retirement budget as the starting point for the Go-Go years. Does it have all the "Go-Go" expenses already? If not, how far off is it? Maybe you now are thinking you'll tour the National Parks while your physically able. Before making that new dream a reality, does or can it fit into your initial budget as-is? Or, do you need to cut back somewhere else to get 4 two-week road trips in this year. The thing you shouldn't do is assume road trips aren't that expensive, assuming you can cover the expense with a little more taken out of savings. This is where estimates need to be done beforehand to know that higher costs can be accommodated.

While a Go-Go phase is easy to define - travel that you always wanted to do, new activities, visiting grandkids, 2 cars, etc., a Go-Slow phase is more challenging. What is meant by Go-Slow? No travel or just once a year to the family vacation? Does it include a car (plus insurance, maintenance, etc.) or not? Maybe it means more meals out or delivered because it's too difficult to cook and clean anymore. You can try to be more precise on what to include or not, or assume that, between less travel and keeping one car, the Go-Slow years will reduce expenses by 15%. Then, the No-Go phase reduces another 10% but you also add in a few days of in-home care for 5 years.

Ok, so now you've cut back some other expenses, have good estimate of the travel cost - does the budget balance? If not, and the plan is telling you to pull $5,000 more out of savings this year, did you forget about the additional taxes for the higher income? Maybe that's another $1,000 or $1,500. Sitting here at the beginning of the year, committing to this travel plan, what happens if the market drops 10%? (Last year was pretty good, right?) As you can see, you can get into trouble quickly by having enough money at the start of retirement - deciding to Go-Go a little more - assuming you can spend it now because the Go-Slow years will be here before too long and you'll just cut back more then. Maybe that plan works, but you won't know until you run that revised spending through a retirement planner to see the impact (with that whole compound growth and sequence of returns thing). The point is that you should plan for the retirement phases before you retire and take care when deviating from what you planned because of the long-term consequences. Heck, maybe you thought you would slow down by 75, but then you can and want to keep going - how can that be paid for?

This is an important discussion because studies show that spending will be less as the years pass into retirement. Some other "experts" say that early in retirement, many don't spend enough for fear of running out, then have too much left at the end. And there's the old age issue to deal with - assume 5 years of assisted living or just one year - that's a big difference in cost. This illustrates that retirement planning needs to include your spending assumptions for the in-retirement phases and an estimated amount of old-age care. Then, if you get to 75 and can keep Go-Going you can decide to pay for it out of what you put in the other phases if your savings have not been drawn down more than planned. And finally, giving thought to what to assume about these phases and then confirming your plan supports it, you set some expectations grounded in numbers. (Your world travel might be limited to 4 countries instead of 40). The phrase "plans change" is predicated on having a plan to begin with in order to change it.