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stages of retirement planning

The Two Stages of Money in Retirement

Are You Still Accumulating Assets or is it Time to Shift Your Focus to Asset Preservation?

At Peak Financial Freedom Group, we believe there are a distinct set of seven rules to live by in order to create retirement security. Today, we’re sharing the first lesson, which is that there are two stages in retirement planning when it comes to money. We detail all seven rules in our book, Momma’s Secret Recipe for Retirement Success.

Stage One 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 have 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 your 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 need 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. We believe 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?


Stage Two 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 some of the differences 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. Over 99% of the retirees and pre-retirees we meet with 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% market corrections happen every seven years on average since 1929, so you’d better 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. If you have an advisor, it means he/she may not be solely looking after your best interests. 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 they may not be 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. The history of the financial industry is that it was built based on the concept of asset accumulation.

Final Thoughts

If you want to make sure you can move confidently into Stage Two of Retirement Planning – Income Distribution and Asset Preservation, contact us today!

 


This information 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. This information is not mean to be relied upon as actual financial or tax advice. The ideas, thoughts, and strategies presented here are those of the Management Team and provide an insight to our views at Peak Financial Freedom Group, LLC and its affiliates. None of this information is intended to give you specific tax, investment, real estate, legal, estate, or financial advice. The planning and ideas in this data are not suitable for all individuals or situations. Consult a qualified financial professional before making any investment decision.
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Roseville, CA 95661

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All presentation data is provided and intended to be used for general educational purposes only and is not intended as a solicitation for you to buy or sell any financial product.  By contacting Peak Financial Freedom Group, you may be offered additional information regarding the purchase of financial products. None of the material presented is intended to give you, nor are the presenters engaged in giving you, specific tax, investment, real estate, legal, estate, retirement, or financial advice, but rather to serve as an educational platform to deliver information; nor is it intended to show you how the strategies presented can specifically apply to your own tax, investment, estate, financial, or retirement position, but rather to offer an idea of how these principles generally may apply. Consult with a qualified investment, tax, legal, and/or retirement advisor before making any decisions.

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2019(1), 2020(2), and 2021(3), Five Star Professional Wealth Manager Award - Dan Ahmad and Jim Files have been nominated for and have won the 2019, 2020, and 2021 Five Star Wealth Manager awards. Wealth managers do not pay a fee to be considered or placed on the final list of Five Star Wealth Managers. Once awarded, wealth managers may purchase additional profile ad space or promotional products. Award does not evaluate quality of services provided to clients. The Five Star award is not indicative of the wealth manager’s future performance. The inclusion of a wealth manager on the Five Star Wealth Manager list should not be construed as an endorsement of the wealth manager by Five Star Professional or this publication. Working with a Five Star Wealth Manager or any wealth manager is no guarantee as to future investment success, nor is there any guarantee that the selected wealth managers will be awarded this accomplishment by Five Star Professional in the future. Award winners represent an exclusive group of wealth managers who have demonstrated excellence in their field by satisfying 10 objective selection criteria. For additional information on the Five Star award, including a complete list of the 10 objective selection criteria and their research/selection methodology, go to https://fivestarprofessional.com.

Investment advisory services are offered through Fiduciary Solutions, LLC, a Registered Investment Advisor (CRD #148118). Insurance products and services are offered through PFFG Insurance Agency LLC, a licensed insurance agency (CA 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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