When it comes to planning for retirement, two popular rules of thumb are that you'll need to fully replace your working income to maintain your standard of living and that your spending will rise with inflation throughout retirement. For most people, neither is exactly true.
The new Modern Retirement Monthly, "How much will you spend in retirement ?" shows that, just as your lifestyle and spending change during your working years, they also vary across different phases of retirement. UBS research identifies three key phases:
1. Transition—when you're volunteering or still working, but not as much, and your spending stays roughly the same from year to year
2. My Time—a period focused on travel and leisure, characterized by elevated spending levels that gradually decline as you become a little less active each year
3. The Last Waltz—when you expect to lead a more relaxed, simpler life, during which health issues and the associated expenses increasingly become the focus
It's particularly important to prepare for the impact of expenses for healthcare throughout retirement and long-term care in the second half of retirement. Understanding how your spending will change across each phase can help you implement a financial plan that anticipates your evolving income needs.
Learn more: In a UBS On-Air interview, Michael Crook, Head of Institutional and UHNW Investing Strategy, UBS CIO Americas, discussed how investors can better estimate their expenses when considering retirement.