It is often believed that the spending of a person decreases after retirement because people become less active as they grow old. However, bad health and inflation can significantly increase the outflow of money after your retirement, and your financial situation might improve or worsen depending on how well you have planned for these expenses. A new theory divides retirement age into three stages.
The first stage is the active stage in which people want to utilize their free time for traveling and having fun while they are still in good health. This stage might involve a lot of spending as people become more active than they were before the retirement and spend more on leisure.
Slowly, this energy wanes and people decrease their travelling and other leisure activities. Spending will decrease during this stage.
In the last stage, activity becomes almost nil due to health constraints and other physical factors. Health bills and maintenance expenses might increase during the final stage. The exact time and duration of these phases vary from person to person and in some cases, not all of these might happen.
In order to manage your finances well, you need to keep a check on your spending during the early years of retirement – in the first stage itself. Too many exciting trips, adventures and meetings with long-lost friends will attract you as you have plenty of free time, money and good health at your disposal. But never spend so much that you get in a position where your finances are running so low that you are not sure whether they can sustain your lifestyle for the rest of your life.
One thing that you should always do is to stick to a budget for your post-retirement life that covers your needs. This will help you in understanding how much you can spend in the early years of your retirement and when you need to save.
Another wise decision will be to make some investment that will give your assured returns for the rest of your life. This will give you backup income even if you end up spending too much in the initial years. If you are close to 60 years of age, you should plan for 35-40 post-retirement years. Keep your initial spending low and invest your savings in a safe portfolio. You should also keep updating your budget and spending pattern regularly depending on whether your portfolio is going up or down.