This week’s CBTV show is entitled, “The Changing Financial Seasons of Your Life – Be Sure Your Investments Change with Your Age and Goals.”
To start the show off, I mentioned the following recent economic news:
The S&P 500 dropped nearly 6% in the month of August, making this the 4th straight month in a row that this popular index has declined. And if the stock market volatility in August wasn’t bad enough, major concerns about the economy in the U. S. and abroad, carried over into September, with the S&P suffering its worst-ever, three-day start to the month. A key demographic in this massive sell-off has been baby boomers. According to a recent report from the Federal Reserve Bank of San Francisco, boomers have started pulling their money out of stocks, and placing their savings into more conservative investments.
So, to be prepared for whatever the stock market may do, one’s financial life should be divided into 4 seasons – first, there is the “accumulation” season, where you work hard, save and invest to grow your nest egg. The next is the “preservation” season, where you work hard to protect your life savings. The following season is the “distribution” phase, where you structure your life savings to provide an income to last throughout your retirement years. The fourth and final financial season is the “succession” phase, where your remaining life savings is passed on to your loved ones, in the most tax efficient manner. Be sure you stay true to the 4 seasons of your financial life.
Here are some key financial planning tips, to guide you through the 4 seasons of your financial life:
1) Accumulation – ages 20 to 55: Accumulating wealth sets the foundation for your entire life, including every season that follows. Setting goals, saving and investing consistently, developing tax-saving strategies and structuring your retirement plan as early as possible, will allow you to keep more of your hard-earned savings throughout the following seasons.
2) Preservation – ages 55 to 65: In order to successfully preserve your assets during this season, you should reduce or eliminate most investment risks, but still look to earn better than average returns. You also want to work to reduce unnecessary expenses, fees and taxes from your portfolio as well.
3) Distribution – ages 65+: Sufficient income planning is the most important consideration of this season, as you determine how to make the most of your financial savings. Your goal here should be to maximize your income, while reducing your tax liability.
4) Succession – after your death: Again, taxes need to be considered here as well, as you plan how to pass on your remaining nest egg and savings to your loved ones. You worked your whole life to get to this point, and your legacy will depend on how well you planned your finances in each of the previous seasons, and what estate planning you have prepared in advance.
So, as you can see, each financial season of life builds on the one before it, with a successful retirement hopefully waiting for you in the end. And planning each season carefully, in advance, will help you get the most out of your financial life.
I would like to hear your opinion about the four financial reasons of one’s life. Does it make sense to you and will you follow it? Do you think it is a prudent map to follow or do you have other ideas for your financial future? Until next week, Dump Debt, Invest Wisely, Believe in Yourself and Make it Happen!
-Matt
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