Understanding the 3 stages of retirement and what they mean for your money

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Understanding the 3 stages of retirement and what they mean for your money

Retirement marks the beginning of a new chapter for most Australians. And as we step into the unknown, we often envision spending the same amount year-by-year. While this thinking certainly makes planning simpler, it’s not realistic. The average retirement might last between 20 and 30 years – a long time over which our spending needs will change.

When we understand how our needs shift, we’re in a better position to make informed decisions about our money, lifestyle and long-term wellbeing.

Stage 1 - The Honeymoon Stage

People often kick off retirement by taking a long-planned holiday and by making lifestyle purchases – such as a new Winnebago or an extension to the backyard deck. With the diary freeing up, Stage 1 retirees generally go out more and seek out fun activities with friends and family.

In Stage 1 it’s important to do all the activities – such as that trip around Australia – that you might find harder to do later if your health declines. Stage 1 is also when many retirees make decisions about downsizing or relocating. Typically, they’re looking ahead and setting themselves up in housing that’s suitable in case they’re less mobile in the future.

Downsizing might also be a strategy to help release capital to fund retirement. For retirees in good health, Stage 1 can last many years. That’s why it’s important to talk to your financial adviser about your budget so you can get the balance right between your immediate aspirations and the need to have funds stashed away for the future.

Stage 2: Adjustment and stability

In Stage 2, many of the lumpy lifestyle expenses are behind us and the big trips have been ticked off. For the average retiree, life slows down and assumes a steady rhythm. Spending declines, even after considering the impacts of inflation. For many in Stage 2, their attention turns to simplifying their finances so that they’re easier to manage, and to estate planning to ensure family members are cared for by revisiting wills and updating powers of attorney.

Stage 3: Fraility

Most types of spending continue to decline in Stage 3, however medical expenses and aged care costs may increase. For some retirees, higher health and care costs may be offset by lower spending elsewhere. For others, medical and care costs can be hefty and hard to plan for.

A particularly challenging scenario is when one partner must move into care while the other partner remains at home. From 1 November 2025 the new Aged Care Act increases the contributions some people pay towards their care. If you’re already receiving aged care as at 31 October 2025, you’ll continue to be assessed under the previous rules.

And if you’re assessed as having low financial means, then the new law is unlikely to impact you. But for people with income and assets above a certain level, the cost of care is likely to increase. This means late-stage retirement could end up being more costly.

Every retirement journey is personal

Spending isn’t constant throughout retirement, so looking ahead may enable you to confidently enjoy spending in Stage 1 – knowing that in Stage 2, your spending is likely to decline.

Ultimately, your spending depends on your personal circumstances, and that’s where your financial adviser can help. They’ll be able to factor in your likely longevity and help you prepare for the true costs of retirement. They’ll also be able to work through whether the new aged care rules apply to you and their impact, and if so, help you plan for those additional costs.

Actively caring for your money.

We can make sure your finances are set up for each stage of retirement, helping you plan so that you can enjoy your retirement with clarity and confidence.