Do You Know the Two Stages of Money in Retirement?

Asset Accumulation and the Important Shift to Asset Preservation

At Peak Financial Freedom Group, we believe that the thing our clients want more than anything else is retirement security. Fortunately, there are seven rules to live by that will help you achieve them, and we’re sharing the first lesson here with you today. (If you want all seven rules right now, we detail all of them in our book, Momma’s Secret Recipe for Retirement Success.)

Have you ever stopped to think about the fact that there are two distinct stages in retirement planning when it comes to money? Understanding the goals of both clearly – and determining when to shift from one to the other – is critical for your retirement plan.

The First Stage of Retirement Planning: Asset Accumulation

The first stage of retirement planning is one you likely know very well. It’s called Stage One of Retirement Planning – Asset Accumulation. Stage One is when you’re working, making a salary, investing monthly, and having many years until retirement.

During Stage One you want the maximum growth you can get from your assets, are tolerant of high volatility, will accept large losses, will continue to make contributions, have plenty of time on your side, and don’t need income from your assets for many years. Basically, in Stage One, you can handle a high level of risk.

Most retirees we meet, many at age 60, 65, 70, and even 75, are still in Stage One mode. You, or your current broker, might have done a great job accumulating assets up until this point in time, and you might have gotten a little bit lucky with the Bull Market thriving for a decade before COVID-19 hit. With the market recovering and life beginning to get back to normal, you are probably continuing to do most of the same things with the money that you did when you were young and working, in many cases taking a lot of risks and not creating an income plan.

SEE ALSO: How to Estimate How Much You’ll Need to Retire

Why it’s Important to Move Out of Stage One

For Stage One to be the proper planning methodology for you once you are retired, you should to be able to say you are perfectly comfortable not making your previous salary, it doesn’t bother you that you are not investing money every month like you used to, you have no issue with high volatility, you are not afraid of large losses, you feel you have enough time to make up any large loss, and you don’t want or need income from your assets for a long time. Very few retirees can say all these things are true. Can you? Can your spouse?

Here is the issue – if you are retired, or within five to ten years of retirement, you should have already transitioned out of Stage One and into Stage Two of Retirement Planning – Income Distribution and Asset Preservation. Here’s why:

  1. If you are retired, ask yourself if you suffer through another market crash like 2008 or 2020, will your retirement be unaffected by the loss? Will you feel safe taking the same amount of income out of your assets and feel confident your income won’t run out? Will you feel secure things will still work out if the stock market crashed -50% again? If you are retired, how will your spouse feel?
  2. If you are within five to ten years of retirement, ask yourself if you suffer through another stock market crash like 2008 or 2020, will you be able to retire on-time as planned or will you have to work longer — a lot longer? Will your projected future retirement income be unaffected by the loss? How will you feel if you have to work ten more years instead of five more years? Will you feel safe taking the same amount of income out of your assets and feel confident your income won’t run out? Will you feel secure things will still work out if the stock market crashed -50% again? If you are within five to ten years of retirement, how will your spouse feel?

SEE ALSO: Are You Risking Your Retirement With These Two Investment Myths?

The Second Stage of Retirement Planning – Income Distribution and Asset Preservation

Stage Two should begin when you are retired or are within five to ten years of retirement:

  1. You are no longer making your big salary.
  2. You are no longer making any monthly investments into your 401(k)/403(b)/457/SEP.
  3. You want and need maximum security.
  4. You do not want much volatility at all.
  5. You cannot tolerate any large stock market losses.
  6. You need to create the maximum amount of income and make sure the income is guaranteed to be paid to you and your spouse, if married, for as long as you both live, and the income must be available immediately or at a specific time in the future.

In short, you can plainly identify from this list that there are no similarities between Stage One and Stage Two. You can’t use the same strategies, you can’t use the same assets or allocations, you can’t use the same planning techniques, and you can’t use the same advisor for both strategies. Many of the retirees and pre-retirees that come into our office for the first time are still in Stage One of Retirement Planning – Asset Accumulation mode. As we said, you or your current broker might have done a great job accumulating assets up until this point in time, and you might have gotten a little bit lucky with a bull market that was thriving longer than anticipated before COVID-19.

Why Stage Two is Crucial

Remember, -40% of market corrections have happened every seven years on average since 1929, so you’d better be able to protect your assets against large losses. If you are retired, or within five to ten years of retirement, and you haven’t already transitioned from Stage One into Stage Two, this simply means your assets may not be positioned properly. Many advisors specialize in helping you to accumulate assets for retirement (Stage One). They are experts in asset accumulation; it is how they were trained, it’s what they are good at, it’s what they like to do, but not all of them are experts in Stage Two of Retirement Planning – Income Distribution and Asset Preservation. If you’re still stuck in Stage One, you need immediate help from an expert in Stage Two.

How We Can Help You Plan for a Secure Retirement

If you want to be able to use the money you’ve diligently saved – and make sure you can move confidently into Stage Two of Retirement Planning, we can help! Please contact us today to schedule a conversation.

Peak Financial Freedom Group
2520 Douglas Boulevard, Suite 110
Roseville, CA 95661

DISCLOSURE:

All of the information presented here is provided and intended to be used for general educational and informational purposes only and is not intended as a solicitation for you to buy or sell any financial product. None of the information presented is intended to give you specific tax, investment, real estate, legal, estate, or financial advice but rather to serve as an educational platform to deliver information. The ideas, thoughts, and strategies presented here are those of the Management Team and provide an insight to our views on Peak Financial Freedom Group, LLC. Every detail in this website is subject to change without notice. Seminar, radio shows, TV productions, book releases, magazine and book promotions are sponsored, promoted and paid for by Peak Financial Freedom Group, LLC.


2nd Opinion Package available to Qualified Retirees and Soon-To-Be-Retirees may include free consultations, a free retirement income plan, risk analysis, and fee analysis. In addition, a comprehensive written retirement income plan may be provided to those who complete the entire process. Qualified Retirees and Soon-To-Be Retirees must have a minimum of $1,000,000 of investible assets such as IRA’s, 401K’s from past employers, stocks, bonds, mutual funds, bank accounts, money markets, CD’s, etc., but DOES NOT include real estate, businesses, limited partnerships, 401K/retirement plans that can’t be moved to another plan, and other illiquid type assets.


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Investment advisory services are offered through Fiduciary Solutions, LLC, a California Registered Investment Advisor. Insurance products and services are offered through PFFG Insurance Agency LLC, a licensed insurance agency (CA Insurance License #0N14013). Peak Financial Freedom Group LLC is a financial planning and umbrella marketing organization, which enables the provision of multiple financial services under one brand. Peak Financial Freedom Group LLC, PFFG Insurance Agency LLC, and Fiduciary Solutions LLC are affiliated entities with common ownership and control.


Jim Files is licensed as an investment adviser representative with Fiduciary Solutions LLC (CRD #1620449) and is a licensed insurance producer with PFFG Insurance Agency LLC (CA Insurance License #0F06511). Dan Ahmad is licensed as an investment adviser representative with Fiduciary Solutions LLC (CRD # 1491561) and is a licensed insurance producer with PFFG Insurance Agency LLC (CA Insurance License #0732913).

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