By Steve Giles
Retirement is a well-earned milestone — an opportunity to embrace freedom, hobbies, travel and family time. But as the paychecks stop and nest eggs take center stage, the early years of retirement demand thoughtful financial planning. How you manage your spending in the first five to 10 years can set the tone for the decades ahead.
1. Understand your retirement phases.
Most people think of retirement as one long chapter. In reality, it’s more like a play with three acts.
- Act I: The Go-Go Years. Early retirement typically entails active travel, hobbies and possibly helping family.
- Act II: The Slow-Go Years. In middle retirement, spending tapers slightly and health expenses begin to rise.
- Act III: The No-Go Years. Late retirement includes less discretionary spending and more on medical and care costs.
Recognizing the phases helps retirees match their spending to their lifestyle and energy level.
Learn more: 7 guidelines for new retirees
2. Watch the spending surge.
It’s common — and completely natural — for spending to spike in the first few years of retirement. You suddenly have the time and freedom to do everything you’ve postponed: Trips to Europe, golf memberships, house projects. But early spending can catch retirees off guard, especially if it’s more than their portfolio can sustainably support.
Tip: Create an “active retirement budget” for your first three- to five years of retirement that reflects your goals and bucket-list activities. But check your budget against your safe withdrawal rate and other retirement income.
3. Don’t rely on rules of thumb alone.
The 4% rule is a useful starting point: Withdraw 4% of your portfolio in your first year of retirement, then adjust for inflation. But it’s not a one-size-fits-all solution. For instance:
- If you retire before 65, you might need to reduce your drawdown.
- If markets dip early in retirement (known as sequence-of-returns risk), withdrawals may need trimming.
- If you’re delaying Social Security, you’ll temporarily need more from your investments.
Tip: Work with a financial planner or use retirement software to model different spending scenarios and adjust as life unfolds.
Learn more: Funding retirement needs amid turbulence
4. Time Social Security strategically.
For many retirees, delaying Social Security until age 70 can significantly boost lifetime benefits — especially if you’re in good health and have other assets to draw on in your 60s. But others may need to claim earlier due to cash flow, poor health or a lack of other income.
Tip: Review your break-even age and consider survivor benefits. Social Security planning is one of the most impactful decisions retirees make.
Learn more: Claiming Social Security: Sooner or later?
5. Prepare for inflation and health costs.
You may not feel inflation much at first, especially with fewer fixed expenses. But over a 20- to 30-year retirement, even mild inflation can erode your purchasing power. Health care costs, in particular, rise faster than general inflation.
Tip: Keep some assets in growth-oriented investments, even in retirement. Consider a Health Savings Account (HSA), long-term care insurance or setting aside a dedicated “health care fund.”
6. Segment your retirement assets.
One strategy that helps many retirees sleep better is bucketing: Divide your assets into near-term, mid-term, and long-term buckets.
- Bucket 1: One to three years of cash or very conservative investments for spending.
- Bucket 2: Moderate-risk assets for years four through 10.
- Bucket 3: Growth-oriented investments for later years.
Tip: This approach helps avoid selling long-term investments in down markets just to fund current expenses.
Learn more: Rebalancing: Too important to ignore
7. Plan for fun — but also flexibility.
Retirement is meant to be enjoyed. You should take that dream trip or help the grandkids if it fits your plan. The key is staying flexible. Spending can fluctuate — unexpected home repairs, family support or rising medical needs can happen.
Tip: Revisit your budget annually. A small tweak now can prevent a large problem later.
Learn more: Why I’m budgeting for retirement
Final thought: Balance enjoyment and stewardship.
The best retirement plans aren’t about strict frugality or unchecked indulgence. They’re about balance.
You worked hard for this chapter of your life. The right financial strategy in the early years of retirement will help you write the rest of your story with confidence, joy and peace of mind.
Steve Giles is senior vice president and an investment advisor at Landaas & Company, LLC.