Stages of Retirement: Planning for the First Years of Your Retirement

Understanding what your expenses will be and how to stay active mentally and physically can help make the most of your first few years of retirement.

Two men at a retirement party

Budgeting for the first years of your retirement can be tricky since many people don't realize how much it costs to be retired. Among the first rules to remember? You'll need to account for both leisure activities and expenses, like health insurance, that were once covered by an employer.

Karen Brown Josephson, Vice President and Senior Wealth Planner for Wells Fargo Private Bank, recalls one client who envisioned spending $140,000 a year in retirement. But each time Josephson and the client met, the client thought of items that made that number grow — $10,000 for an annual trip to Europe, $14,000 a year in gifts to her five grandchildren — to an annual total that eventually reached $220,000.

Underestimating retirement expenses is a common issue. "You can always spend what you have, no matter how big the number is," she explains.

Get down to fundamentals
To prepare for household costs in the first years of retirement, Josephson suggests borrowing a page from business financial management: writing a cash flow plan. With the help of your financial team, make a budget of current and anticipated expenses; see how that matches up with the income from your portfolio. Cash flow planning shows, on a year-to-year basis, when there's a surplus and when there's a deficit. Operating for too many years on a deficit could result in running out of money or depleting your children's inheritance. She suggests sticking to a budget that allows you to preserve enough principal that you don't deplete your retirement resources.

Samuel J. Sugg, Wealth Advisor and Senior Vice President for Wells Fargo Private Bank, says early retirement is a good time to begin "cleaning up your personal balance sheet" and separating yourself from assets that you don't often use. When there is no long-term interest in holding real estate, consider selling it to generate income, suggests Sugg. This could be a second or third home or a partnership where you don't have a controlling interest. Sugg gives the example of a family home shared by siblings. If it's a place your siblings use more than you do, you could suggest they buy out your share.

Find work that pays
Many professionals in the early years of their retirement choose to keep engaged in some sort of work.

Both Josephson and Sugg say this is a great idea. "It's extremely important to exercise your brain as much as your body. Keeping your brain sharp can help keep you in control for many more years," Josephson says. She suggests finding ways to offer your services on a part-time basis in your previous field if it is something you enjoy, like a former corporate CFO who helps a nonprofit with their financial management.

Sugg sees most of his clients remaining engaged in the business sector after retiring. Serving on corporate or nonprofit boards where their expertise is valuable or investing in income-producing properties are typical choices, he says.

Retirees may also aspire to start new businesses, but Sugg advises caution. It works best if they start a business where they already have an area of expertise. For the retiree who always wanted to open a restaurant but never owned one before, "it's incredibly difficult to make that transition and be successful," he says.

Finding a new approach to work or leisure in retirement should never sabotage the financial goals you spent decades working toward. Josephson recommends consulting with your relationship team to determine how much can be invested in a new venture or spent on a new passion without exceeding your desired level of risk or robbing resources you'll need as you move into the next stage of retirement.

Julie Halpert is a Michigan-based freelance journalist who has written for numerous publications, including The New York Times, Newsweek, Family Circle, and MORE magazine.

Photography by Thinkstock

What can Wells Fargo do for you?

Whether you are planning for retirement or living in retirement, discuss goals and outlook with your relationship manager.

Wells Fargo Wealth Planning Center, part of Wells Fargo Private Bank, provides wealth and financial planning services through Wells Fargo Bank, N.A. and its various affiliates and subsidiaries.


Wells Fargo & Company and its affiliates do not provide tax or legal advice. Please consult your tax or legal advisors to determine how this information may apply to your own situation.

This information is provided for educational and illustrative purposes only.

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