When planning for retirement, many of us think of our “post-work” years as one long season of life. But as most retirement planners know, and most retirees eventually discover, planning for retirement doesn’t mean planning for one season. It really means planning for three distinct periods of life, like watching a play in three acts.

At least, that was the image that came to mind as we read this recent Kiplinger article in which wealth advisor Angie O’Leary makes a persuasive case for us to plan for retirement in three acts. While the actual duration of each act may depend on a variety of circumstances, it’s probably true for almost all of us that the lifestyle we’ll enjoy at age 65 is quite a bit different from the way we’ll life at 75, 85, or beyond.

Planning for Retirement Means Rewriting Expectations

As people are increasingly living longer and the Baby Boomers are flooding into retirement, O’Leary suggests that it’s time to rewrite our expectations for our golden years.

“For the average 65-year-old American couple, there’s close to a 50 percent chance at least one will live to age 94 and a 25 percent chance of one living to at least 98, according to the Social Security Administration,” O’Leary writes. “Retirement is no longer a single block of time in your life-span. It is now three acts, an evolution of reassessed expectations and redefined goals. Longer life expectancies, and the health care costs that come with them, should be top of mind.”

Planning for Retirement: Top Fear is Running Out of Money

The biggest fear around retirement for most of O’Leary’s clients is running out of money. “Nearly 73 percent of RBC Wealth Management clients surveyed said they worry about outliving their assets, while 62 percent said they were concerned about the cost of health care and long-term care,” she writes.

But there’s a balance to be struck here, too. Being too frugal and spending too little during your working years can lead to needless restriction, while spending too much can increase your risks in retirement. “Planning for the post-work years is a balancing act, but you can set yourself up for success by considering how you will spend your time and money during those three phases,” O’Leary adds.

Planning for Retirement, Act 1: Re-energizing (Age 65 to 75)

During Act 1, stepping from a career-focused life into a career-less phase is a major transition. “While taking a break from the workaday world may be a relief, you may find yourself wanting to continue an active lifestyle,” O’Leary notes.

Baby Boomers seem to be recognizing this trend more than past generations, and are seeking ways to stay busy in retirement during this re-energizing phase, including travel, renewed interest in hobbies, volunteering, or even taking on childcare duties with their grandkids. Many choose part-time work to stay engaged in their late 60s and early 70s. (You’ll find a companion article about part-time jobs for retirees this week here on the Blog.)

But there’s a financial hitch to this. O’Leary explains, “This means their spending is equal to or, in some instances, higher than what it was when they were working. Some decide to continue working on a reduced scale to keep busy or stretch their dollars in retirement.”

Before allowing yourself to spend too freely in Act 1, she says, consider the fact that Act 2 isn’t far behind.

Planning for Retirement, Act 2: Downshifting (Age 76 to 86)

O’Leary says that most healthy seniors heading into their 70s are probably still “on the go” and leading an active lifestyle. But it should be expected that your pace of life will begin to slow down as the so-called “downshifting” phase arrives.

“At this phase, retirees are staying closer to home, starting to downsize their lifestyles and spending less — less on cars, less on homes, less on travel,” she explains. “They are leading a simpler and thus more inexpensive lifestyle.”

Aside from health care, housing is “one of the most expensive pieces of the retirement puzzle,” O’Leary notes. But even though it’s a large expense, it’s also a significant and often overlooked asset. Many seniors enter this phase of life with significant equity in a family home, equity which they will likely need to tap into as they move to housing that’s more appropriate to their health and age.

 “To think about retirement without having a serious conversation about housing is a mistake,” she adds. (This is a point Rajiv Nagaich emphasizes repeatedly.)

Statistically, this “Act 2” period is when most seniors who choose to live in a senior community will make their move. For many independent living facilities, the average move-in age is 82 or 83.  Many experts suggest that moving earlier might be preferable, to adjust to and enjoy your new lifestyle.

Planning for Retirement Involves Housing Choices

O’Leary says to consider the following housing choices when making a plan (we’ve included these verbatim from her article):

• Aging in place. You may need to update your home to make it safer and more senior-friendly, including remodeling bathrooms to make them more accessible or relocating the laundry room on the main floor.
• Downsizing. Will you move into a smaller condo or townhouse? Or move to a new town, either permanently or part time throughout the year? If you downsize, you can reduce the cost of upkeep, insurance and utility bills. You may also be able to profit significantly from selling your home.
• Continuing care retirement community. Healthy, younger retirees can live independently with social and recreational options. But if your needs change, the option of moving to an assisted living or full-time nursing section is available on the same property.

Planning for Retirement, Act 3: Reflecting (Age 86 and up)

O’Leary says that as you reach your 80s and 90s, it’s customary to experience another shift in your financial focus, spending less on activities and more on essentials. This represents a slower and more reflective phase of life.

“The challenge in these years isn’t normal monthly expenses — it’s planning for health care, including the possibility of moving to a retirement village or nursing home,” she writes. “Preparing in advance for this stage of life is critical.”

She adds, “Annual out-of-pocket health care expenses, on average, are nearly triple for an 85-year-old couple compared to a 65-year-old couple, according to a 2021 HealthView Services report.”

Planning for Retirement Must Include Long-Term Care

Though it’s not everyone’s favorite topic to talk about, O’Leary stresses that long-term care and its costs cannot be ignored. “Seventy percent of 65-year-olds will need some form of long-term care, according to the U.S. Department of Health and Human Services. The national annual median cost for a private room in a nursing home is $108,405, with the average length of stay at 2½ years,” she explains.

Consider the following health and long-term care pieces as you set up your plan (again, included here from the article):

• Understand the impact of your income on your Medicare premiums
• Explore gap and supplemental health care coverage for costs not covered by Medicare, like dental and vision
• Consider getting long-term care insurance while you are healthy
• Ask to include health care expenses as a separate category in your plan and use a higher inflation rate to reflect health care inflation

O’Leary adds that, for couples, having a survivor benefit plan is also important. “Often the survivor will have greater care needs as they age without the support of the spouse,” she says.

The Key Word in Planning for Retirement: “Planning”

“How confident are you that you’re truly prepared for what retirement may throw your way?

The answer may lie in having a comprehensive wealth plan in place,” O’Leary writes. She adds that 84 percent of RBC Wealth Management clients surveyed who have a wealth plan feel confident about their retirement years, while only 45 percent of those without a plan feel the same way.

“It makes sense,” O’Leary says. “Those who worked with a financial adviser and created a wealth plan have fewer concerns and generally are less likely to be blindsided by a change in direction that can easily occur over the course of a long retirement.”

Of course, since O’Leary is a financial planner herself, her focus is on money. But as Rajiv will remind us repeatedly, comprehensive retirement planning has to go far beyond dollars and cents. O’Leary herself writes, “A solid retirement plan, created thoughtfully and managed over time, can help you prepare for unexpected changes in your life and give you the freedom to identify solutions to suit your lifestyle as your circumstances change in your three acts of retirement.”

That’s true, Rajiv would add – but “a solid retirement plan” takes all aspects of retirement into account. Whether you’re in Act 1, 2, or 3, a LifePlanning Seminar is the right step, right now.

Breaking News: Rajiv’s New Book is Here!

We have big news! The long-awaited book by Rajiv Nagaich, called Your Retirement: Dream or Disaster, has been released and is now available to the public.  As a friend of AgingOptions, we know you’ll want to get your copy and spread the word.

You’ve heard Rajiv say it repeatedly: 70 percent of retirement plans will fail. If you know someone whose retirement turned into a nightmare when they were forced into a nursing home, went broke paying for care, or became a burden to their families – and you want to make sure it doesn’t happen to you – then this book is must-read.

Through stories, examples, and personal insights, Rajiv takes us along on his journey of expanding awareness about a problem that few are willing to talk about, yet it’s one that results in millions of Americans sleepwalking their way into their worst nightmares about aging. Rajiv lays bare the shortcomings of traditional retirement planning advice, exposes the biases many professionals have about what is best for older adults, and much more.

Rajiv then offers a solution: LifePlanning, his groundbreaking approach to retirement planning. Rajiv explains the essential planning steps and, most importantly, how to develop the framework for these elements to work in concert toward your most deeply held retirement goals.

Your retirement can be the exciting and fulfilling life you’ve always wanted it to be. Start by reading and sharing Rajiv’s important new book. And remember, Age On, everyone!

(originally reported at www.kiplinger.com)