What Phase Of Retirement Are You In? Why It Matters.
If you are wondering what to do for retirement planning, it is important to realize that this type of planning doesn’t happen overnight. It’s a decades-long journey that requires careful consideration to ensure you’re maximizing your returns and achieving your long-term goals. In the age of mobile investment apps, robo advisors, and commission-free trades, you may think going it alone is the recipe for success. But the roads are paved with tales of individuals who lost their life-savings in the stock market.
Study after study shows investors underperform the markets, often acting on emotion which means buying high and selling low. It’s particularly true in the current environment where volatility and uncertainty rule amid the COVID-19 pandemic.
Saving for retirement is so much more than signing up for the company-sponsored 401 (K) plan or buying stocks. It requires strategizing, risk management, and estate planning, none of which you get from a single mobile app or robo advisor. Whether you’re beginning your retirement journey or nearing your golden years the need for comprehensive planning is necessary for every stage of retirement. Read on to learn why.
Amassing a Retirement Nest Egg: The Accumulation Stage
Arguably the most important phase of retirement, the accumulation stage, is the first stop on your journey. It starts as soon as you enter the workforce and lasts until about ten years before you exit it. During the accumulation phase, you’re amassing the money you’ll need once you no longer collect a paycheck. At this stage you should take advantage of company-sponsored retirement programs such as a 401 (K), contributing as much as you can.
The accumulation stage is also the time to begin saving outside of your company’s plan. Putting away as little as $100 a month may not seem like much, but over thirty years it adds up. And that’s not taking into account any gains the $100 a month may realize if you’re investing it.
The accumulation stage is typically the longest of the retirement periods and the toughest. At the same time, you’re saving for retirement, you’re on a life journey that may include marriage, a family, and homeownership. In this stage, you could also face job loss and health issues that could easily derail your retirement plans.
The accumulation phase requires careful planning and often the help of a trusted financial planner. Not only do you have to figure out how much you’ll need to live your best life in retirement, but you have to amass the cash. That can be tricky from investment and tax perspectives. That’s where financial planners come in. They can help you choose the right investments, factoring in your goals, time horizon, and risk tolerance and help you make tax-smart moves. After all, the tax advantages don’t end with the 401 (K). Money managers can also help you manage risk. The last thing you want to happen is your life savings get wiped out due to an unforeseen event.
Protecting What You Worked So Hard For: The Preservation Stage
About ten years before you’re set to retire the preservation stage of retirement kicks in. This is the stage in which you’re starting to seriously prepare for retirement. At this point, you’ll have to decide when you’ll retire, where you’ll set down roots, and what you want to spend your time doing. For some people, it means a second act while for others it’s all about hanging with the grandkids. Whatever your goals you’ll need to start planning on how you’ll achieve them with the money you’ve amassed.
Your investment strategy also shifts during the preservation phase. Now is not the time to make risky bets on high-flying tech stocks or too good to be true real estate deals. It’s all about protecting what you have. That could mean reworking your asset allocation, to lower your risk or coming up with ways to save more cash. During the preservation stage, you don’t want to lose sight of growing your emergency fund. As you get older your health may wane. The more money you have set aside for unexpected medical expenses the better. Estate planning also comes into the mix during this phase. You have to decide if you want to leave your heirs any of your assets and how.
Just like the accumulation phase, having a sound financial plan is extremely important during the planning and preservation phase of retirement. It doesn’t matter if you have $100,000 or $1 million saved. Everyone needs a game plan to protect the assets they’ve accumulated.
Time To Draw Down That Savings: The Distribution Phase
Easily lasting more than twenty years, the distribution phase is the final stage of retirement and is when all your hard work pays off. If you did your job and followed an investment plan, you should be kicking back, and enjoying your golden years. This part of the journey begins the day you stop earning income and start drawing down your social security benefits and retirement savings. The early years of retirement can be tricky. You typically still have a lot of energy to pursue your retirement dreams. But you have to be careful. Drawdown too much money in the beginning and you may outlive your savings.
Even in the distribution phase, you want to have a plan that includes remaining somewhat invested, with at least a little exposure to growth. As the years go on and you settle into life in retirement your spending tends to slow down. At the same time, the risk of more costly illnesses begins to rise. The final chapter requires a lot of planning and changes as you age, particularly since this stage can last decades if you have your health.
Retirement planning is a journey that starts the day you begin your first job and ends some forty or more years later. It requires a well thought out plan that is flexible depending on the stage and what life throws your way. Working with a financial planner that understands your unique hopes, dreams, and financial situation can go a long way in ensuring you live the retirement you’ve always dreamed of.
At Prime Wealth Advisors our mission is to help our clients achieve a secure and comfortable retirement. We take the time to get to know our clients and their unique situations and then work with them on a financial plan. We are able to offer planning, investing, insurance, tax, and legal services to our clients-all under one roof. Contact us today for a complimentary consultation.