There are four basic phases to your financial life:
1) The Start Up Phase (age 20-35) where you are struggling to get ahold of your finances and get to a point where you can truly start saving,
2) The Accumulation Phase (age 35 to 55) where you get serious about contributing to a retirement plan and building as large of a nest egg as possible,
3) The Preservation Phase, (age 55 to 70)
where you focus on keeping what you’ve made while continuing to grow money more moderately,
4) The Income Phase, (age 62 to 100)
when you get serious about deriving an income from your assets and making sure that your income lasts longer than you do.
Most people tend to focus on gathering and accumulating money, especially when they see markets mostly rising. That is normal and natural–we are all pre-wired from the factory with a hoarding instinct. That instinct comes in handy when you are living in the jungle or on a small “grow-your-own” farm. In those environments, it is critical to keep saving and accumulating in the first two phases of your financial life with the biggest portion of your money.
But let’s face it, you are not living in a jungle or doing subsistence farming. You are an urban dweller in a very new and different century with many unknowns.
This is a century in which we may see Social Security as we know it get altered forever: The government projects that by 2033, the Social Security program will not be able to meet all of its obligations.
One day, it comes time to harvest and store your accumulated savings.
You still keep planting some fields for cash flow and future reserves, but you have earned the right to slow down and start living from the fruits of your hard work. It only makes sense–As you enter Phase 3 & 4, a bigger portion should be dedicated to income and preservation.
Fixed income is a very important thing in retirement, if not the most important thing. In fact, without reliable fixed income in ample amounts, there is no retirement.
But now with bond rates near all-time-low’s and stocks near all-time-high’s, how will you achieve the goals you’ve set for retirement?
While positioning your equity investments for growth is always critical—many traditional fixed income bond investments are falling short and may not provide the solid income hedge they once did. Who can live on one to two percent for thirty years in retirement? Trying to do that will likely push you to withdraw principal in increasing amounts as you move to and through your retirement. Running out of money is a valid fear if you don’t take steps to ensure, and insure, your retirement income.
You will need both your living essentials and dream lifestyle needs covered for both you and your spouse, from now on. That’s why it is so practical and wise to re-position some of the assets that have been aggressively accumulating money and are now subject to a crash, over to reliable income producing vehicles from one hundred year old insurance companies. You may resist the idea of an annuity, but perhaps you have not seen the newer forms of more liquid retirement annuities that pay more income and protect your heirs as well.
Building an unshakeable financial foundation under your retirement is always a good idea, but we may be looking back on the fall of 2017 as an IDEAL time to do so.
Plenty is going on around the world that could shake the markets, and for retirees, the risk is too high to flounder without a serious income, growth, and estate plan.
The first and most important step in making better money decisions is to take very seriously what stage of your financial life you are in. If you are 55 or 65, it’s simply not in your best interest to invest like you would if you were 35. The clock is ticking. Its time to get strategic and tactical with your money.