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3 Financial Phases of Life

Planning Matters Radio / Peter Richon
The Truth Network Radio
May 18, 2024 10:00 am

3 Financial Phases of Life

Planning Matters Radio / Peter Richon

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May 18, 2024 10:00 am

Understanding the three main financial phases in your life is key to maximizing your finances. As @peter with @richonplanning explains to @erinkennedy, each stage has different goals, risks, and opportunities.    The three phases are: 1. Accumulation Phase 2. Preservation Phase 3. Distribution Phase
If you'd like to learn more about these phases and how to maximize your wealth and minimize risk at each stage, please give Peter a call at (919) 300 - 5886 or make an appointment at   #WealthManagement #CompoundInterest #Taxes #Retirement


Peter, good to see you.

Welcome back, everyone. We are getting back to basics today, discussing the three financial phases of life. Our lives have three main financial phases, accumulation, preservation, and distribution. Each stage has different goals, risks, and opportunities, and understanding all three phases is important to maximizing your finances at each age.

So let's start, of course, with the accumulation phase. When we are in this stage, what are our goals and our biggest risks? The goal is growth and the risk is not investing. I see people get derailed and they're scared by market ups and downs, mostly the downs, of course, but they stop investing or they never get that progress started in the first place, or maybe they're not doing as much as they need to.

But this phase is critical. You've got to be investing in the market. These are your paycheck earning years. This is when you've got the income available to do the investing. And there's a chart on your screen now that sort of shows these three different phases of our financial life. The green chart in the back is the accumulation phase.

It's somebody that over a 20-year period, this is the S&P returns, it's the same returns of the same market indices over the three different phases. But you start with a zero balance day one, and over the course of time, you invest money on a regular basis. You're typically a little bit more aggressive because your bills, your standard of living, your financial competence is taken care of by your paycheck, and your paycheck also supports your ability to invest.

So we can take a little bit more risk here. Now this chart shows that somebody in the preservation phase just maybe already had $500,000 to begin with and let it sit for 20 years. At the end of that 20-year period, their money had grown nicely. But somebody who was in the accumulation phase started at zero and over the same period of time contributed the same $500,000, and by the end of that period had significantly more money than the person who started way ahead. And that's because they were taking advantage of regular contributions and dollar cost averaging and didn't get scared off, by the way, by the market downturns.

This is very critical. When you are in that accumulation phase, you've got to keep your head down. And when the news is bad and everybody's panicking that the stock market is down, you've got to think of this as your best time to buy, an opportunity to purchase investments on sale.

And those are the ones that ultimately are going to make the most money over the long frame time horizon. And then next, you do have your preservation phase. When does this stage begin?

Probably needs to begin a little bit earlier than a lot of people think about it, but I would say five to 10 years from retirement. You should be entering into this preservation phase where you're a little bit more protective with what you have built thus far. I mean, now we're talking about a life savings here.

And I often sort of give the visual analogy. If somebody is on the eve of retirement and their entire life savings is sitting in cash on the table in front of them, and this is what you're going to have to support you for the rest of your life throughout retirement, and they either lost half of that money in that moment or doubled that money in that moment, which is going to make a bigger impact on their projections and expectations and their lifestyle in retirement. For most people, losing half of their life savings at or near the transition to retirement would make a much more significant impact on what they expect retirement to look like and be about than doubling their money. They might be more comfortable if they doubled their money, certainly, right? But if they lost half of it, how they expected to live might be inalterably changed. It might be deeply impacted.

And so that's why we need to be a little bit more protective against those large losses, especially as we near retirement, maybe five to 10 years out, you begin this phase and certainly, you know, five years or less to go in your working career, you need to be well into the preservation phase and then likely for the first several years, maybe five to 10 years into retirement, you are also working on more of the preservation of assets as well. And then last, we have the distribution phase, and this is essentially the opposite of the accumulation phase. It is.

It is. It is the opposite behavior of money. Instead of being a net investor, you're taking money and putting it in the market. In the distribution phase, you are a net seller of assets. You've got your investment portfolio and you're pulling money out. And the red chart in the front, again, same market conditions, shows that same amount of starting balance here, hypothetically $500,000 in this chart, following the 4% rule and taking out some money each and every year. And in this scenario, in about 10 years, we have less than half of what we started with on day one.

Now, I don't know when exactly it is in my retirement timeline that I'm going to feel comfortable with half of the amount that I start retirement with, but it's certainly not 10 years into retirement. And this is why we've got a plan very specifically for this distribution phase. This is maybe the part that takes the most careful planning because we don't plan on earning any more money or income to do further investment with, and we've got a finite amount of money to deal with and an unknown amount of time that we've got to make that money last. Right, which brings us to longevity risk.

How do we account for that risk? How do we make sure our money lasts as long as we do? We've got to time optimize the portfolio, Erin, and this means that we segment and earmark specific dollars for specific periods of time. Maybe this bucket of money is for the first one through five years of retirement. A second segment of our money, a second bucket, if you will, is maybe four years, five through 10, and then another bucket that is four years, 10 plus. And while we are taking distributions and taking income from the first bucket, hopefully that last bucket in line is growing enough to offset the distributions and giving us the ability to maintain the sort of water wheel-like quality of money as we are taking income, as we are removing dollars on the front side that more are filling back up on the back side.

Clearly so much to consider that balance is really important. Peter, if somebody would like to talk this through with you, how can they get a hold of you? You're welcome to give me a call, 919-300-5886, 919-300-5886, and we do offer to no cost, no obligation, put together that optimized retirement plan for you. It's a written plan that details income, investments, taxes, health care, legacy, certainly taking the different phase of your financial life where you are at into accounting and planning for the next phase.

That is what the optimized retirement plan is geared to help you see and achieve and accomplish and then have a tangible plan in your hands. So if you'd like to take advantage of that, give us a call again, 919-300-5886, 919-300-5886. You can also go online, It looks like,

You can email me, peter at And part of the distribution phase, Erin, part of the accumulation, all of these phases, you're going to have some tax implications. And so we've got that great retirement tax bill calculator available online as well,

Go online and check that one out. That is real eye-opening, especially if you are in that or nearing the distribution phase. How much are you going to owe on taxes on that retirement savings over your lifetime?

And how can you keep more of your money? Great. This was a good one and very important. Peter, thank you very much. Always a pleasure, Erin. Thank you.

Hey everyone, Peter Rashan here. Hope you enjoy the content. As always, make sure that you like, subscribe, share the videos with others that may find this information helpful. And as always, you're welcome to be in touch or to submit questions or comments. You can comment below the video, anything that you'd like to see or hear shared on our YouTube channel and in future videos. If you've got a topic that you've been thinking about or is a concern for you financially, be sure to let us know. We'd love to help you by discussing it on the channel. So appreciate the continued views and the likes and the subscribes, the shares, the comments, always helpful. We look forward to getting you the information that you need.

This has been Planning Matters Radio. The content of this radio show is provided for informational purposes only and is not a solicitation or recommendation of any investment strategy. You are encouraged to seek investment tax or legal advice from an independent professional advisor. Any investments and or investment strategies mentioned involve risk, including the possible loss principle. Advisory services offered through Brooks Own Capital Management, a registered investment advisor, fiduciary duty extends solely to investment advisory advice and does not extend to other activities such as insurance or broker dealer services. Advisory clients are charged a quarterly fee for assets under management, while insurance products pay a commission, which may result in a conflict of interest regarding compensation.
Whisper: medium.en / 2024-05-18 10:06:51 / 2024-05-18 10:10:54 / 4

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