How to Budget for the 4 Financial Phases of Retirement?


Most of us spend the most productive years of our life working hard in our job and saving money so that we can retire comfortably. However, working and saving without any goal or strategy will not yield desirable results.

Therefore, proper budgeting during different financial phases of retirement is vital for achieving your financial goals and objectives.

Importance of Budgeting

Budgeting helps you in:

  • Understanding your spending habits
  • Prioritising your buying decisions
  • Remaining debt-free
  • Creating emergency funds.

Your budget rules and criteria can evolve and change as you grow older and cross different financial stages of retirement.

Financial Phases of Retirement

Planning for your golden years should ideally begin as early as you get your first salary. But, if you fail to start your retirement planning early, due to a lack of sufficient knowledge, you must give it a serious thought while you are in your early 30s.

Considering the age of 30 as the starting point, you can divide your retirement into four broad phases.

  • Wealth Building Phase

This is the initial or the starting-out phase that typically starts from the age of 30 and can last until 50. Utilise this phase as much as you can because you have many advantages during this phase.

  • You can take more significant risks for potentially high returns during this period as you are young with lesser responsibilities.

  • You can increase your investments as you get pay hikes and promotions.

  • You can diversify your investments in different insurance products such as life insurance, ULIPs, etc., to spread your risk and modify your portfolio allocation as you grow old.

  • Wealth Preservation Phase

This phase begins with you turning 50 and lasts till the day you retire. At this stage, you should refrain from trying out unconventional or adventurous investment options that can expose your retirement funds to unnecessary risk. Instead, it would help if you focused on preserving the wealth you have generated in the previous phase.

Most of your responsibilities, like children’s education, owning a home, etc., might be over at this phase. Therefore, you can consider shifting your investment toward risk-free instruments like debts, sovereign bonds, FDs etc.

Furthermore, at this stage, your budget should focus on

  • Remaining debt-free.

  • Covering expenses to maintain the standard of living.

  • Updating medical coverage that can adequately protect you and your family.

  • Retirement

This is the stage where you bid adieu to your job and retire. In India, people generally retire at the age of 60 years. By this time, you should have enough financial means to sustain your lifestyle in the absence of a job. You may decide to invest a portion of your retirement corpus to buy an annuity plan that can help you receive a regular pension.

Final Word

The primary objective of having a meticulous budget during different phases of life is to manage the expenses and income efficiently over 30 to 35 years. In this way, you can better assess your financial position and act accordingly to correct your course of action.