Have you ever wondered why financial advice about saving for retirement varies so much from one advisor to another? This can make it difficult to know who to trust or what to believe. One straightforward way you can wade through your options is to identify which financial phase you’re in and then choose your investment strategy accordingly.
Broadly speaking, every investor who saves for retirement finds themselves going through two financial phases in their financial lifecycle. Those two phases are the accumulation phase and the distribution phase. What follows here is the what, how, and who of the investment strategies you’ll use during these phases and the kinds of professionals who can help guide you to a sound financial plan.
Accumulation Phase
The What
During your working years, you’ve been accumulating and growing your assets. In financial plan parlance, we call this your accumulation phase. If you’re disciplined, or if you’ve had the foresight to set up automatic contributions, then you’ve probably gotten pretty good at accumulation.
The Who
For this phase, it’s common to work with a fund manager designated by the HR department of your employer, especially if you have a 401(k) or retirement plan with an employer match. You might also work with a stockbroker or a broker-dealer for help with the buying and selling of investments. You may even try forming this part of your investment strategy yourself using online financial services. You are, after all, responsible for making the lion’s share of the contributions.
Distribution Phase
The What
During retirement, investors enter the distribution phase. This phase begins when you’re no longer putting money into your portfolio or retirement accounts; instead, you’re taking the money out. This fundamental shift changes everything you thought you knew about a sound investment strategy.
During this phase, investors are advised to make their allocation selections based on preservation first and growth second. Some advisors even usher their clients through a third phase, known as the preservation phase, five to 10 years prior to when their clients need this money for income. During the preservation phase, the portion of money required for your income needs is reallocated into financial instruments that better protect this money from market volatility.
The How
Being successful during the distribution phase requires much more finesse and forethought than the strategies used during the accumulation phase. In this phase, your retirement funds can be damaged by tax inefficiencies, long-term care catastrophes, and the problem of required distributions from tax-qualified retirement accounts. For this reason, you’ll want to work with an advisor who specializes in this phase.
The Who
Distribution specialists are trained to ensure that your income lasts for the rest of your lifetime. They do this by coordinating your investment decisions with your distribution strategy for greater efficiency and better portfolio durability. They know how to look out for unintended side effects such as increased taxes or a hike in your Medicare premiums. They also know how to give you advice about claiming your Social Security benefits. Ideally, these advisors are independent and able to give you access to a full spectrum of investments that include both securities and insurance tools.
Develop a Sound Investment Strategy
No investment strategy is foolproof, but there are plenty of steps you can take to get as close as possible. Understanding the financial phases and identifying which one you’re in will equip you with the knowledge you need to make vital decisions around how to handle your investments. If you’re looking for an even deeper dive into what we covered in this blog—or if you have broader questions about the financial lifecycle—get in touch with us at Elite Income Advisors. We’re happy to help you secure your financial future!
