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The 3 phases of retirement – and how they affect your spending

March 2nd, 2021

Just like during our working life, how much we spend in retirement, and on what, depends on our ever-changing circumstances.

Sometimes – like when your washing machine breaks down and floods – we’re hit with unexpected costs. Other times – like when the kids and their families start visiting you more often and your car rarely has to leave the garage – your expenses dip.

We ask Andrew Jewell, First Super Executive Manager – Financial Advice and Education, for his thoughts on how your retirement spending could change over time, so you can plan ahead.

The three phases of retirement

“Often when members start thinking about retirement, their minds go towards what they want to do in those first few years,” says Mr Jewell. “They want to enjoy that time – and so they should! But what about the years that follow?”

According to Mr Jewell, it can be helpful to break retirement spending into three common phases:

Phase 1 – Active Years
During these years, you’re spending time with friends and family, picking up hobbies, and maybe even travelling. “This is the time you’re likely to spend the most money,” says Mr Jewell. “But it’s important to think beyond this active period, as your income needs won’t be the same for the rest of your life.”

Phase 2 – Passive Years
In phase two, you’ll generally spend more time around the house. “The body always slows down, no matter how fit you keep yourself. This may be due to physical health or mental changes. Regardless of what slows us down, the result is reduced spending on travel and leisure.”

Phase 3 – Aged Care Years
During the later years of retirement, you may no longer live independently and are likely to need more help with daily activities. “By planning ahead for this period, you can set aside funds for care and support, so the financial burden doesn’t fall on family members,” says Mr Jewell.

So now you know the phases – what’s next?

A budget planner, like this one from MoneySmart is your best friend.

“We normally get couples to write down their budget – what they believe their living expenses will be,” says Mr Jewell. “Then we say, okay, review that after the first year. We find it’s that first year that really tells you what your expenses are going to be. Most people are actually surprised by how much they save on things like petrol when they’re not having to drive to work every day.”

If you’re not sure how much you should expect to spend each year, check out the ASFA Retirement Standard. This budget (updated quarterly) shows you how much money is needed to live “comfortably” or “modestly” in retirement. Where do you fit?

Getting help

“When we set members up in retirement, we expect things to run pretty smoothly,” says Mr Jewell, “but of course, life is full of surprises. Sometimes a big change can upset the dynamic of your whole retirement. If that happens, speaking to our team can help get you back on track.”

For more information about financial advice, visit First Super’s Advice page or book an appointment with a Financial Planner* by calling 1300 360 988.

*First Super Financial Planners are authorised representatives of Industry Fund Services Limited (ABN 54 007 016 195, AFSL 232514)