March 2, 2024

In this stage, it is good to increase your retirement savings and learn to say no. Avoid the temptation to keep up with your peers and live beyond your means.

Your financial needs and goals will change with each life stage. We will cover the three major stages: wealth accumulation, preservation and distribution.

The accumulation phase

In the accumulation phase, people save and invest their money to increase wealth over time. This is typically done through retirement accounts, such as a 401(k).

This phase is often the best time to start investing and saving because it gives you the most benefit from compounding interest. For this reason, many experts recommend that you begin saving as early as possible.

During this period, it is important to avoid debt as much as possible, so pay off any existing debts and focus on building your emergency fund. You should also try to live below your means by avoiding expensive lifestyle items, like new cars or homes.

However, it isn’t necessary to be a miser during this phase if you are meeting your savings goals. In fact, it’s often better to splurge a bit (as long as you don’t go into debt). This will help you build a sense of progress and encourage you to continue working towards your financial goals.

The wealth preservation phase

Once you reach this stage, your income from work is at $0, and you’re living off the proceeds of your savings or investments. This is when you need to keep an eye on managing your funds to ensure they will last throughout the remainder of your life.

To do so, you need to set budgets and reject non-mortgage debt, while continuing to make contributions to your retirement accounts. You should also continue to diversify your investments to reduce the risk of investment losses. Remember that a financial loss late in life can be disastrous as you don’t have the time or health to recover from it.

This is also the stage where you want to consider giving to charities and philanthropy, which can leave a lasting legacy for your family and friends. If you’re not careful in this phase, it’s easy to spend too much and deplete your savings too quickly. This could push you back into the workforce or force you to abandon your dreams.

The wealth accumulation and wealth preservation phase

Once a person enters the wealth preservation stage, their financial priorities shift from saving and investing to making sure their money lasts throughout retirement. This includes focusing on retirement planning, budgeting, and establishing regular savings goals.

In this phase, individuals might also need to consider life insurance policies and long-term care. They may need to start monitoring their retirement accounts more closely, rebalance their portfolios, and begin moving their investments from equity to debt.

However, this is not the time to take big risks. If an investment goes south, it could potentially devastate a person’s retirement and lead to a lot of stress. That’s why it’s important to have a well-defined financial plan and stick to it, while playing it safe! It’s also a good idea to talk with a qualified advisor about estate planning. It’s possible that a trust could help ensure that the individual’s assets are passed down to their loved ones. This is especially true if the individual has multiple beneficiaries.

The wealth preservation and wealth accumulation phase

When you’re entering this phase of your financial life cycle, the main objective should be to preserve and maintain your wealth. You have worked hard to build your net worth and need to ensure that your wealth can sustain you for the rest of your life, if not longer.

At this stage, you should consider strategies that can help with this goal, such as diversification1, a solid emergency savings plan and implementing a withdrawal strategy that takes into account your longevity and your portfolio’s potential for growth. You may also want to start looking into long-term care insurance and ensuring that your debt is under control.

This is often considered to be the hardest of all wealth stages, and it is important to work with a financial advisor to create a savings plan that can support your lifestyle throughout this stage. You need to move from a saving mindset to a spending one, and this is not an easy transition for most people.

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