Go-Go, Slow-Go, No-Go
Financial planner discusses the three phases of retirement
By Deborah Jeanne Sergeant
The three phases of retirement—go-go, slow-go, and no-go—represent Michael Stein’s vision for how money is spent as depicted in his book “The Prosperous Retirement.”
Of course, before you take the plunge, you should consider if the time is right.
“If somebody retires too early, they risk a potential 10% penalty,” said Neeraj Shah, CPA and owner of Shah Law Firm, PLLC and Shah CPA Firm, PLLC in Penfield. “Taking tax-deferred monies — i.e. traditional IRA — out before one is 59½ years old is generally a no-no. If somebody wants to access cash in their early retirement, they should exhaust all alternative methods before tapping into their retirement account if they are under 59 ½ years old.”
He noted that there are exceptions to the 10% penalty, but it’s important to avoid it as that’s a sizeable amount of money.
“The taxpayer’s taxable income goes up in the amount of distribution, potentially jumping a tax bracket, and the 10% additional tax penalty is added at the end,” Shah said.
In the “go-go” years, about the first 10 years of retirement, retirees are relishing their newfound freedom from work. They’re enjoying travel, engaging in hobbies and perhaps buying a few high-ticket items such as a classic car, RV or lakeside cottage for their leisure time.
It’s a heady time of life, as it’s likely their children have grown and flown. Their nest egg is sizable and they’re ready to have some fun. But spending too much during these early retirement years can endanger the later phases of retirement, so retirees should still stay on budget while still enjoying life.
Retirees may find that they’re spending at a rate that’s a little higher than while they were earning; however, typically this balances out in the next phase.
The “slow-go” years are when retirees settle into a rhythm and turn more inward. They may not travel as much. Perhaps their adult children are now having children. Their new roles as Grandma and Grandpa draw them homeward as they provide childcare and enjoy local outings with the little ones.
They may also realize they want to engage in volunteering in their community to find more fulfillment as the novelty of travel and amusement has worn thin. Some retirees begin to feel the effects of aging and have to slow down. Retirees are getting out less in this phase and thus spending less as their leisure activities are not as spending oriented. In general, expenses slow down by about 2% annually during these years.
“People who are in mid-retirement age, above 59½ years old but under 73 years old, should try to plan for even retirement distribution over a period of years instead of taking a whole lot of money in one year and very little money in subsequent years,” Shah said. “The ability to plan your retirement distributions over a period of years will keep taxpayers in lower tax brackets over the course of their retirement: less money to the government, and more money to the taxpayer.”
He added that many people have not withdrawn from these accounts before and planning how to do so can make a difference in reducing income taxes.
In the third phase, “no-go”, retirees usually minimize their most expensive interests such as travel as they focus on maintaining independence. Sometimes, their health issues curtail their travel and hobbies. Usually, this is in the late 70s to early 80. While leisure expenses are going down, healthcare expenses are starting to increase overall. Their budget will expand to meet those expenses. Prescription drugs, assisted living care, homecare and long-term care expenses are all very costly and typically all rise the older one becomes.
They may also choose to modify their homes to age in place, which can be costly in the short-term but better ensure they can remain in their homes longer. The average cost of home renovations to age in place is around $9,500 for things like a walk-in tub and non-skid flooring. Features such as a completely accessible bathroom or stair lift can cost up to $50,000.
“The No. 1 issue of people who are in late retirement, 73 years old plus, is to satisfy the IRS required minimum distribution rules, RMDs,” Shah said. “This rule is in place so that the government gets some tax from otherwise tax-deferred monies. RMDs are the minimum amounts you must withdraw from your retirement accounts each year. You generally must start taking withdrawals from your traditional IRA, SEP IRA, SIMPLE IRA, and retirement plan accounts when you reach age 73.
“Be aware of the RMD rules and contact your financial adviser ahead of time. Make sure you don’t miss the rules to take your RMD when you are supposed to take them, or else face stiff penalties.”
3 Phases of Retirement at a Glance
Go-Go Years
Characterized by high energy and a desire to travel, pursue hobbies, and enjoy leisure time immediately following retirement. This phase often involves the highest discretionary spending.
Slow-Go Years
A transition period where physical activity begins to decrease. Travel may become more local or less frequent, and retirees may shift toward less strenuous activities.
No-Go Years
Marked by a significant reduction in physical mobility and, often, a shift in spending from luxury items to health-related services. This phase focuses on safety, comfort, and, in many cases, necessary medical care.
Source: Commonwealth Financial Services.