The 4 Phases of Retirement: Why a Successful Retirement is About More Than Money
You can spend 35 or 40 years working, saving and investing for retirement. You can pay off your mortgage, build a substantial investment portfolio and develop a retirement income plan that shows you have more than enough money to retire comfortably.
But does having enough money guarantee a happy retirement?
Not necessarily.
Financial security is an essential part of retirement planning, but retirement is also one of life's biggest personal transitions. Leaving the workforce can change your daily routine, relationships, identity and sense of purpose almost overnight.
That is why preparing for retirement should involve more than simply answering, "Do I have enough money?"
You also need to consider a different question:
"What am I retiring to?"
In this episode of the Retiring Canada Podcast, we explore the 4 phases of retirement, a framework described by Dr. Riley Moynes that can help explain why the transition into retirement isn't always what people expect.
Understanding these four phases can help you prepare not only financially, but personally, for the years ahead.
Phase 1: The Vacation Phase
For many Canadians, this is what retirement is supposed to look like.
No alarm clock.
No Monday morning meetings.
No deadlines.
Maybe you spend the winter somewhere warm, take the European vacation you've been postponing, buy the boat you've always wanted or simply enjoy having more time at the cabin.
After decades of working, the freedom can feel incredible.
And it should.
But there is an important question to consider before retirement:
Are you primarily retiring from something, or are you retiring to something?
When people approach retirement, it is natural to focus on what they want to leave behind: stress, long hours, commuting, deadlines and responsibility.
Knowing what you want to leave behind is important. But knowing what you want your new life to contain may be even more important.
Eventually, the novelty of unlimited free time can begin to fade.
A vacation feels special partly becuase it is a temporary break from normal life. When the vacation becomes normal life, some retirees discover that unlimited freedom can gradually turn into boredom.
That can lead to the second phase.
Phase 2: The Loss Phase
The loss phase is one of the least discussed aspects of retirement.
Dr. Moynes identifies several things retirees may lose after leaving their careers:
Routine
Identity
Relationships
Purpose
Influence or authority
For decades, work can provide structure to your day.
You wake up at a certain time. People expect you to be somewhere. Problems need to be solved. Colleagues, customers, employees or clients may depend on you.
Work can also become intertwined with identity.
Perhaps you were a business owner, teacher, nurse, executive, tradesperson or farmer. When someone asked what you did, you had an immediate answer.
Then one day, you're retired.
For some people, that transition is liberating. For others, it leaves a much larger void than expected.
This may be particularly significant for someone who has spent decades building a business or career. You may have gone from having employees depending on you, customers calling you and important decisions waiting every morning to suddenly having no obligation to be anywhere.
That can be a dramatic life change.
Why Money Can't Solve Every Retirement Problem
This is where retirement lifestyle planning and financial planning intersect.
Money can solve many problems in retirement.
A strong investment portfolio can provide financial security. A well-designed retirement income strategy can help ensure your expenses are covered. Tax planning can help you use your retirement assets more efficiently.
But money cannot automatically replace purpose.
Someone could have a $3 million investment portfolio, a paid-off home and more retirement income than they are likely to spend.
Those things provide choices and security.
They don't necessarily provide a reason to get out of bed tomorrow morning.
That's why retirement planning should look beyond whether your financial projections work.
You should also think seriously about what you want your retirement to look like personally.
Phase 3: Trial and Error
The third phase can be one of the most interesting parts of retirement.
You start experimenting.
Perhaps you volunteer.
Take a course.
Join a community organization.
Mentor someone.
Try a new hobby.
Spend more time with your grandchildren.
Start a small business.
Or even return to work part-time.
The important thing to understand is that not everything has to work.
You might imagine playing golf five days a week and discover that you don't enjoy it nearly as much when you can do it every day.
You might volunteer for an organization and realize it isn't the right fit.
You might even discover that you miss aspects of your career, but don't miss working 50 hours a week or carrying the same level of responsibility.
That's okay.
Think about the beginning of your working life. At 20 years old, did you know exactly what the next 40 years would look like?
Probably not.
You experimented, made mistakes, changed direction and gradually figured out what worked for you.
Retirement can work the same way.
Financial Freedom Can Give You Permission to Experiment
This is also where a strong retirement income plan can become incredibly valuable.
When you understand where your retirement income will come from, how much you can comfortably spend and how your investment portfolio supports your long-term lifestyle, you may feel more confident exploring your options.
That could mean volunteering for several months.
It could mean taking a course.
It could mean travelling.
Or it could mean returning to work part-time because you enjoy the work, rather than because you require the income.
That distinction matters.
The ultimate goal of retirement doesn't necessarily have to be doing nothing.
It can be having the freedom to choose what you do.
Phase 4: Reinvention
The fourth phase is reinvention.
This is where retirement has the potential to become something much more meaningful than simply not working.
By this point, you may have begun discovering what really matters to you.
For some retirees, that's family.
For others, it's volunteering, mentorship, faith, community involvement, travel or pursuing an interest they never had enough time for while working.
Often, purpose can also come from contributing to the lives of other people.
Consider some of the happiest retirees you know.
There's a good chance they have something they look forward to.
Somewhere to go.
Someone to see.
Someone who depends on them.
Or something meaningful they feel they are contributing to.
That doesn't mean retirement needs to be packed with activities.
There is nothing wrong with drinking coffee on the deck, reading a book or spending an afternoon doing absolutely nothing.
That's one of the great privileges of retirement.
But there can be an important difference between choosing to do nothing and feeling like you have nothing to do.
One represents freedom.
The other can represent a loss of direction.
A Retirement Plan Should Support the Life You Want
Financial planning still plays a crucial role in creating a successful retirement.
At Fundamental Wealth, retirement planning considers important areas such as:
Investment allocation
Retirement income planning
Tax planning
Health care planning
Estate planning
These areas can help create the financial foundation for retirement.
But the bigger objective is to use that foundation to support the retirement you've worked so hard to achieve.
After all:
What's the point of accumulating wealth if you're afraid to spend it?
What's the point of having the financial freedom to travel if you continually postpone the trips you've been dreaming about?
And what's the point of retiring at 60 without considering what you'd like the nest 25 or 30 years of your life to look like?
Retirement planning should be about more than making sure your money lasts.
It should also help you make the most of your money, time and life along the way.
Questions to ask before you retire
As you approach retirement, consider asking yourself:
What do I want my average day in retirement to look like?
Who do I want to spend more time with?
What activities or interests have I always wanted to explore?
Which relationships do I want to strengthen?
Are there causes or organizations I would like to support?
Would I enjoy mentoring, volunteering or working part-time?
How much travel is realistic for the retirement I envision?
What part of my current identity comes from my career?
What will give me a sense of purpose after my career is behind me?
Does my financial plan actually support these goals?
These questions deserve a place in the retirement planning conversation alongside investment returns, taxes and retirement income projections.
Three Actions to Take Before Retirement
Start planning your retirement lifestyle before you retire
Don't wait until your final day at work to determine what comes next.
Start exploring hobbies, relationships, volunteer opportunities and other interests while you're still working. Building those connections before retirement can make the transition easier.
Give yourself permission to experiment
You don't need to have retirement completely figured out on day one.
Try something new. If it isn't right for you, try something else.
Retirement isn't a test you pass or fail.
Make sure your financial plan supports the life you want
A retirement plan shouldn't exist only on a spreadsheet.
Consider the experiences, relationships and goals that matter to you, then determine whether your income, investment, tax and estate strategies support them.
Build a Retirement You Can Look Forward To
To goal of retirement isn't simply to have enough money to live.
It's to build a life worth living.
Your investments provide resources. Your retirement income strategy provides confidence. Your tax and estate planning help protect and manage what you've accumulated.
But ultimately, financial planning should help give you the freedom to spend your time on the people, experiences and causes that matter to you.
Before your retirement date arrives, don't just ask whether you can afford to retire.
Ask yourself what you're retiring to.
And when it comes to retirement, don't take chances.
Make a plan so you can retire with confidence.
All comments are of a general nature and should not be relied upon as individual advice. The views and opinions expressed in this commentary may not necessarily reflect those of Harbourfront Wealth Management. While every attempt is made to ensure accuracy, facts and figures are not guaranteed, the content is not intended to be a substitute for professional investing or tax advice. Please seek advice from your accountant regarding anything raised in the content of the podcast regarding your Individual tax situation. Always seek the advice of your financial advisor or other qualified financial service provider with any questions you may have regarding your investment planning.