During your working years, "retirement" can seem like a faraway goal rather than a phase of life. But once it arrives, it becomes clear that there's more than one retirement phase. There's the early phase, which involves making a retirement budget and preparing to make the move. Then there's the earlier phase post-retirement, where you're still getting your spending down and working out how much to take from savings. But you'll still need to balance things out as you shift to the middle and later phases.

No matter where you are in preparing for retirement, budgeting is essential. Here are some tips to help you set and manage a budget from early through late retirement phases.

Budgeting for the 4 Financial Phases of Retirement

The toughest challenge in retirement planning is determining how much you'll need to live on. Life expectancies can vary, and that’s important to keep in mind when you look at a retirement budget example. A typical retirement budget may follow the average life expectancy of 78.7 years, but if you’re in good health with a family history of living to the age of 90 or later, your own planning needs to compensate for that.

Your budgeting and planning will likely evolve during your post-retirement years. Understanding the four main phases can help you see how your needs will change.

Pre-Retirement (age 50 to 62)

Long before you announce your retirement, you'll start planning. You should be researching budgeting for retirement even before your 50s. But during the final decade or so of your full-time working years, you'll put some serious time into ensuring you're financially prepared.

Use a retirement budget planner to lay out your income and expenses during pre-retirement. Start with your estimated Social Security payment, which you can track with a my Social Security account. Then, include any pensions and annuities you have. Once you've done that, look at your retirement savings accounts and determine how much you can take out each month to ensure it lasts through all the phases of your retirement.

Early Period of Retirement (62 to 70)

The second phase of retirement is the most important. You'll choose the exact age at which you'll retire, which will directly impact how much you'll get each month. If you’re setting an early retirement budget, look at how much more you’ll make if you delay your retirement to 65, 66, or full retirement age, 67. You can see those amounts for Social Security here, but also look into the repercussions of early retirement on your IRAs, 401(k) accounts, or any pensions you’ll receive.

Once you've worked out your post-retirement income, use the expense method of retirement planning to develop a preliminary budget. You can then refine that budget in the coming months as you settle into your retirement lifestyle. This is also when you will want to spend extra on travel while you are active and exploring new hobbies, so keep that in mind as you work on a budget.

Middle Retirement (ages 70 to 80)

You'll have retired by the time you reach age 70, or at least taken Social Security, which stops increasing at age 70. By your 70s, you've gained a little experience. If your initial approach was budgeting for retirement, keep it simple now. You should get more refined.

As you set up your retirement budget categories, remember that you'll eventually pass away. It would help if you had a will and estate plan, and you might want to take some time to decide how much you want to leave behind. Make sure you'll have enough to last, but also take some time to enjoy life.

In this phase, people start settling into their retirement lifestyle, and many spend less money than before age 70.

Late Retirement (80 and up)

Once you've reached your 80s, it's time to review your previous retirement expenditure guidelines. Your medical expenses will likely be higher, and you may eventually need regular care in your home or at a facility you move into.

Many people in their 80s start to see reduced lifestyle spending as they become less active; however, healthcare costs generally become a more significant percentage of the expenditure.

Final Thoughts

Planning for retirement can be challenging, but the good news is, you don’t have to commit now. You can set a preliminary budget and refine it as you go. With the help of a Certified Financial Planner (CFP®), you can get expert advice on how best to make your income work for you at each stage of retirement.

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