Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 266

Five financial stages in everyone's life

We go through stages in our lives. Sometimes it’s useful to look at how our psychology changes as we move from one stage to another. This article describes five financial stages, looking at minimum, successful and exceptional standards.

I don’t have numerical benchmarks for you. Individual circumstances vary too much for standardised benchmarks. It doesn’t matter whether you’re ahead or behind anyone else, let alone some fictitious benchmark person.

Instead, I’ll give you three very rough action criteria at each stage. One will be the minimum, one will represent success, and one will be exceptional. As you get nearer retirement, the criteria stay the same, but their interpretation changes. What was exceptional in the previous stage now simply represents success, and what represented success now becomes the minimum. Don’t take them as rigid guidelines, they’re meant as hints to you.

And don’t take the dates mentioned in defining the stages too rigidly either. Again, they’re hints. We’re all different.

Stage 1: The family and career years (more than 20 years before planned retirement)

The start of your paid working career is a natural starting point for looking at retirement finances. It’s hardly a priority, though. Typical priorities at this stage relate to family and career. From a personal perspective, you’ll want to establish a residential pattern, whether renting or purchasing, keep fit, enjoy life involving leisure, family and friends.

Nevertheless, minimum retirement-related action steps in this phase are to start saving via compulsory super and register for some form of default investment glide path, if there is one. (I explained about glide paths in an earlier article.) In other words, start early.

Success at this stage involves making additional voluntary contributions and increasing those contributions every time your pay increases.

This isn’t easy. You have so many other financial priorities. And you may be saving indirectly for retirement anyway, via paying down a mortgage, which is another form of increasing your assets.

What’s exceptional? Getting into a post-retirement income mindset by doing funded ratio calculations, and understanding social security and superannuation rules. In the early years of work, it’s completely natural to think solely in terms of accumulating wealth towards retirement. Changing from a wealth mindset to an income mindset typically comes much later.

Stage 2: Consolidating the financial base (5 to 20 years before planned retirement)

Now you’re in the peak earnings phase of your career, and this is when you make the financial transition from paying off debts to accumulating wealth, although your children’s education may make a big claim on your resources. The thing is, if it isn’t now, it may be never.

Your social life is still important, as is keeping fit. If you have time, this is when you are valuable as a mentor to young people, because of the experience you have gained.

Being already in compulsory super, increases in your additional voluntary contributions as your pay increases are now the minimum requirements if you want the gift of a financially independent retirement.

Success? Getting into an income mindset is the only way to identify what you need to do between now and your planned retirement date. Included in what you need to do is a consideration of when you’ll move away from the default investment glide path and customise one for yourself.

Exceptional? That’s when you’re in control of an integrated plan for paying off debt (mortgage and credit cards), financing your children’s education and saving toward retirement.

Stage 3: Reaching maturity (five years approaching retirement)

Now it’s not just a financial priority, it becomes a life priority to establish a plan for graduating from full-time work. There are two parts to the plan, financial and psychological, identifying the lifestyle you’re going to, not just the lifestyle you’re going from.

Social activities and keeping fit are important. Start to identify the experiences that satisfy you and make you happy, and explore ways to give something back to society.

At this stage, the income mindset and maximising retirement contributions are the minimum financial requirement. It’s also time to understand investment risk and set forth on your investment path to retirement, including a customised glide path. You should know exactly how you relate to the age pension.

Success? The mortgage and credit card debt are gone, your children’s education is paid for and you are on target for your retirement financial goal without having to increase contributions. You’re starting to understand longevity, for both you and your partner. And you’re considering what to do about post-retirement healthcare and long-term care.

What’s exceptional? You’re ready to start considering your legacy to your children, or even starting to make it available to them in small amounts now. You’re making arrangements for a part-time career. You’re searching for, or may have found, a financial adviser.

Stage 4: Transition (the first three years of getting into a retirement lifestyle)

Now the priority is to make the transition from full-time work happily, remembering that it's psychologically a new world, and even if you thought you knew what you’d enjoy doing, reality is often different. This is normal, not something to be surprised by or disappointed about.

Expand the scope of those social activities that create shared experiences, because typically those are the ones that make you happiest. Experiment with many activities and be honest about what really does satisfy you and make you happy.

The minimum toward retirement finances is now to understand the pattern you have chosen (whether an annuity or regular drawdowns) for your income. Make a decision about long-term care. Find a financial professional. Reassess your financial position (including your personal funded ratio) annually, with your spending pattern starting to establish itself. Make a decision about how you’ll deal with longevity risk.

Yes, all of that is the minimum. If not now, when? After all, you’re now already retired, at least partially. Success comes from everything now being on track, with your legacy plans established.

Exceptional? The psychological adjustment is complete, for both you and your partner.

Stage 5: Planning to downsize your lifestyle (around age 75 or a little later)

Downsizing your lifestyle is a typical phase, and it occurs naturally. Getting your financial affairs to match your downsized lifestyle needs to be done consciously. All financial aspects should now be routine and low risk, because that defines your lifestyle too.

I have no criteria for you at this stage. I simply wish you much happiness!

 

Don Ezra has an extensive background in investing and consulting and is also a widely-published author. His current writing project, blog posts at www.donezra.com, is focused on helping people prepare for a happy, financially secure life after they finish full-time work.

 

  •   6 August 2018
  • 4
  •      
  •   

RELATED ARTICLES

How super funds can better help with retirement planning

2 billion reasons to fix retirement income

Retirement income expectations hit new highs

banner

Most viewed in recent weeks

Are you making these SMSF mistakes?

After four decades advising investors, there are a few common mistakes I've seen SMSF investors make. From holding too much cash and chasing yield to overtrading and trusting tips. Are these errors costing you?

Why have Australian living standards 'fallen' and how do we fix it?

For the last few years there has been much talk of a 'cost-of-living' crisis in Australia and of 'falling living standards'. Lately this has flared up again with the pickup in inflation resulting in a renewed fall in real wages.

Will you run out of money in retirement?

Fear of running out has become a defining retirement anxiety. Why do some retirees die with substantial wealth while others deplete their nest egg? Evidence suggests the answer is more complicated than we think. 

Retirement spending is not one-size-fits-all

New data challenges the idea that Australians are underspending their super. The bigger issue may be helping retirees navigate complexity, make confident decisions and use their savings to support security, wellbeing and choice.

Four options for an income investor’s next dollar

What if Australia’s golden age of dividends is ending? Rather than overhaul your portfolio, it may be worth considering where new capital can work harder. I discuss four income strategies and the trade-offs behind each.

The missing link in the CGT debate

A little-noticed consequence of Labor’s tax changes could have implications well beyond investors’ tax bills. The issue raises bigger questions about incentives, capital allocation and the drivers of long-term economic growth.

Latest Updates

SMSF strategies

Meg on SMSFs: What do we think about reversionary pensions these days?

Reversionary pensions have long been a staple of SMSF estate planning, but are they still the best option? Meg Heffron revisits a once-clear favourite and asks whether changing super rules have shifted the balance.

The ageing ‘crisis’ has not and will not happen

Rising age dependency is frequently treated as a warning sign for economies. But when actual workforce participation is examined, a strikingly different picture emerges about ageing, productivity and economic sustainability.

Retirement

How does the 4% rule stack up?

The 4% rule has long been retirement's gold standard. But after a difficult period for investors, fresh analysis suggests a more conservative approach may significantly improve the chances of making savings last.

Shares

Four charts that expose market concentration risk

Investors have recently been rewarded for backing market leaders, but history suggests this eventually comes at a cost. Now may be the time to review whether your portfolio is carrying unintended risks beneath the surface.

Investment strategies

The case for gearing beyond property

Most Australians gear into property but ignore shares. That may be a mistake. Used carefully, geared equity strategies can enhance long-term returns, reduce cash tied up in growth assets and support retirement income goals.

Economy

Australia's $1 trillion debt pile

The headlines exclaiming that Australian government debt has hit A$1 trillion and US government debt has hit $40 trillion has turned heads, but how serious are they really? Will Australia's mix of debt create challenges?

Economy

Has 100 years of growth made us any happier?

For decades, GDP has been the benchmark for economic success, but has it made us materially happier? If happiness does not rise in lockstep with prosperity, are we overlooking what constitutes a successful society?

Sponsors

Alliances

  • ASA-Logo-RGB-ActiveGreen-web.png

© 2026 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.