The Five Stages of Retirement

Paying for your retirement years is likely the single most expensive undertaking in your life, and chances are you've already started financially preparing for it.

But no matter how much you've saved for this next stage in life, your dream of retirement could become a nightmare if you're not emotionally prepared as well.

"When I ask people to tell me about their retirement plan, they describe their 401(k) and IRAs," says Dan Veto, senior vice president of San Francisco-based AgeWave, a think tank and consultancy focused on aging and retirement. "But that's just how they're going to fund their retirement, not what they'll be doing during retirement. Unfortunately, people put more time into planning a trip to Disneyworld than how they'll spend the next 35 years of their life."

This lack of preparation can come back to haunt retirees. Veto says that the most important factor in determining a happy retirement isn't how much money people have saved for it but how much they have planned for it.

To help retirees better acclimate to the new phase in their lives, AgeWave, along with market researcher Harris Interactive and Ameriprise Financial, conducted a survey in 2005 on the "emotional" aspects of retirement. And like Elizabeth Kubler-Ross' On Death and Dying, which outlines the five stages of dying, the study identified and characterized five distinct stages of retirement.

Imagination

The first stage of retirement begins well before people even reach their retirement day and ranges from 15 to six years prior. At this point, retirement isn't top on their list, and they are most likely concentrating more on pursuing careers, paying bills or putting kids through college.

As retirement day gets closer, however, people in this stage begin turning their attention to their retirement goals and needs. Nevertheless, they still feel they are behind, as 44% of those polled report they are "on track" in terms of preparing overall for retirement.

Anticipation

In the years just prior to starting retirement is the second stage: anticipation. The study found that this stage is a time of great excitement and hope. Financial resources are almost in place, and people begin to spend additional time planning for recreation, new hobbies, family and postretirement careers.

But there is also some doubt and worry in people at this stage, as they haven't experienced such a change in life since they began adulthood. This is when people begin to plan more aggressively: 72% of those polled say they are putting money aside in a 401(k), and 81% are putting money in a separate savings account for retirement. 62% have determined the income they need in retirement, and 40% have bothered to write a retirement financial plan.

"Most people just sort of think retirement is going to be great but don't give much thought to what to do," Veto says. "If you're married, start to have some dialogue with your spouse. Start thinking about things such as when you will retire, where you want to retire and whether you want to move to a smaller home. The more you plan, the more ready you'll be."